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Andretti Company has a single product called a Dak. The company normally produces and sells 88,000 Daks each year at a sellin

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Andretti
Variable cost per unit Note
Direct Materials                   6.50 A
Direct Labor                   9.00 B
Variable Manufacturing overhead                   2.00 C
Variable Selling Expenses                   2.70 D
Total Variable cost per unit                20.20 E=A+B+C+D
Sell Price Per unit                58.00 F
Contribution Per unit                37.80 G=F-E
Number of Units         88,000.00 H
Contribution amount 3,326,400.00 I=G*H
Fixed cost
Fixed manufacturing overhead      704,000.00 J
Fixed selling expenses      352,000.00 K
Total Fixed cost 1,056,000.00 L=J+K
Net Income 2,270,400.00 M=I-L
Ans 1 a
Increase in Units         30,800.00 N=H*30%
Contribution Per unit                37.80 G
Contribution Amount 1,164,240.00 O=N*G
Extra selling expenses      110,000.00 P
Net Income 1,054,240.00 Q=O-P
Ans 1 b
The net income will increase by $ 1,054,240 so yes the additional investment is justified.
Ans 2- Foreign Market
Total Variable cost per unit                20.20 E
Less: Present Variable Selling Expenses                   2.70 D
Add: Shipping costs                   2.60
Add: Import Duties                   3.70
Revised Variable cost per unit                23.80 R
Additional permits and licenses         21,560.00 S
Number of units         30,800.00 N
Permits and licenses cost per unit                   0.70 T=S/N
Break-even price per unit                24.50 U=R+T
Ans 3- Seconds Units
Only Variable unit cost figure is relevant for setting a minimum selling price. Here as the units are seconded so Andretti may also not incur variable selling expenses. So relevant variable cost per unit will be- $ 20.20- $ 2.70= $ 17.50.
Total relevant Variable cost per unit of $ 17.50 is the relevant minimum selling price.
Ans 4 a Plant close
Number of units         14,666.67 V=H/12*2
Contribution Per unit                37.80 G
Contribution lost      554,400.00 W=U*G
Ans 4 b
Savings in Fixed manufacturing overhead by 70%       (82,133.33) X=J/12*2*60%
Savings in Fixed selling expenses by 20%       (11,733.33) Y=K/12*2*20%
Total fixed cost to be avoided      (93,866.67)
Net Financial disadvantage of closing the plant      460,533.33 Z=W+X+Y
Ans 4 c 25% capacity
Number of units           3,666.67 AA=H/12*2*25%
Contribution Per unit                37.80 G
Contribution earned      138,600.00 AB=AA*G
Fixed manufacturing overhead      117,333.33 AC=J/12*2
Fixed selling expenses         58,666.67 AD=K/12*2
Net Financial advantage at 25% capacity        37,400.00 AE=AB-AC-AD
Ans 4 d
So Andretti should not close the plant for two months but operate it at 25% capacity.
Ans 5
Variable cost per unit
Direct Materials                   6.50 A
Direct Labor                   9.00 B
Variable Manufacturing overhead                   2.00 C
Variable Selling Expenses                   0.90 AF=D*1/3
Total avoidable Variable cost per unit                18.40 AG=A+B+C+AF
Fixed cost
Avoidable Fixed manufacturing overhead by 30%     (211,200.00) AH=J*30%
Number of Units         88,000.00 H
Avoidable Fixed manufacturing overhead per unit                 (2.40) AI=AH/H
Avoidable cost per unit                16.00 AJ=AG+AI
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