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Safari File Edit View History Bookmarks Window Help 4896 Wed 8:07 PM a E 0 I, TAYLOR- Outlook Web App Connect Homework # Saved Help Save&Exit; Submit Andretti Company has a single product called a Dak. The company normally produces and sells 60,000 Daks each year at a selling price of $32 per unit. The company's unit costs at this level of activity are given below: Directimaterials Direct abor variable anufacturing overhead Fixed manufacturing overhead 10.00 4.50 2.30 5.00 ($300,000 points total) Variable selling expenaes Fixed selling expenses 3.50 ($210,000 total eBook Total cost per unit Print A number of questions relating to the production and sale of Daks follow. Each question is independent 1-a. Assume that Andretti Company has sufficient capacity to produce 90,000 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 25% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $80,000. What is the financial advantage (disadvantage) of investing an additional $80,000 in fixed selling expenses? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 90.000 Daks each year A customer in a foreign market wants to purchase 20,000 Daks. If Andretti accepts this order it would have to pay import duties on the Daks ofS70 per uni and an additional $9,000 for permits and licenses. The only selling costs that would be associated with the order would be $3.20 per unit shipping cost. What is the break-even price per unit on this order? 3. The company has 1,000 Daks on hand that have some irregularities and are therefore considered to be seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure that is relevant for setting a minimum selling price? 4. Due to a strike in its supplier's plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 30% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months, If the plant were closed, fixed manufacturing overhead costs would continue at 60% of their normal e el during the two-month po od and he fed eing expenses Prav 1 of 5 li Next>Explanation / Answer
1-a. Financial advantage/(Disadvantage): Increased contribution (Note:1) 210000 Less:increase in fixed expenses 80000 Financial advantage 130000 Notes: 1.Contribution per unit=Selling price-Variable cost=32-(10+4.50+2.30+1.2)=14 Increased sales units=60000*25%=15000 units Increased contribution=15000*14=$210000 1-b. Additional investment is justified since there is a financial advantage of $130000. 2 Import duty=20000*1.70=34000 Permit license=9000 Selling cost=20000*3.20=64000 Additional cost on order=34000+9000+64000=107000 Break-even price=107000/20000=$5.35 3 Relavant cost=variable selling expense=$1.20 per unit Other costs are sunk costs 4 a. Sales level=60000*30%=18000 units Contribution per unit=14 Contribution foregone=18000*14=252000 b. Avoidable fixed cost Fixed manufacturing overhead (300000*40%) 120000 Fixed selling expenses (210000*20%) 42000 162000 c. Financial advantage/(Disadvantage): Avoidable fixed cost 162000 Less:contribution foregone 252000 Financial Disadvantage -90000 d. Company should not close plant for two months since it results in a financial disadvantage of $90000. 5 Avoidable costs: Direct materials 10 Direct labor 4.5 Variable manufacturing overhead 2.3 Fixed manufacturing overhead (30000*75%)/60000 3.75 Variable selling expenses (1.2*1/3) 0.4 20.95
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