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Andretti Company has a single product called a Dak. The company normally produces and sells 82,000 Daks each year at a sellin

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Answer #1
Calculation of contribution margin per Dak
Selling price 62
Less: variable costs
Direct Material 9.5
Direct Labor 9
Variable Overhead 3.2
Variable Selling Expenses 3.7
Total Variable cost 25.4
Contribution Margin per Unit 36.6
1-a Financial Advantage = Additional contribution Margin - Increased expenses
=20,500*36.6– 130,000 = $620,300
1-B yes, since benefit
2.Calculation of break even price
Direct Material 9.5
Direct Labor 9
Variable Overhead 3.2
Import Duties 1.7
Selling expenses 1.7
Total variable cost 25.1
Break even price = 25.1 + 12300/20500 = $25.7
3.Relevant cost is the variable selling expense since manufacturing cost has already been incurred i.e. $3.70 per unit
Operating level = 82,000*25%*2/12 = 3416.67 units
4-a. Contribution margin foregone = 3416.67*36.6 = $125,050.12
4-b Fixed cost avoided = 328,000*65%*2/12 + 246,000*20%*2/12 = $43,733.33
c.Advantage of closing = 43,733.33-125,050.12 = $(81,316.79) i.e. disadvantage
d.No, should not be closed
5.Calculation of avoidable cost
Direct Material 9.5
Direct Labor 9
Variable Overhead 3.2
Avoidable Fixed manufacturing overhead 1.2
Variable selling expenses avoided 1.233
Avoidable cost per unit 24.13
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