Question

Problem 11-18 Relevant Cost Analysis in a variety of Situations (LO11-2, LO11-3, LO11-4] Andretti Company has a single product called a Dak. The company normally produces and sells 122,000 Daks each year at a selling price of $48 per unit. The company's unit costs at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit $ 8.50 10.00 3.30 5.00 $610,000 total) 1.70 3.50 ($427,000 total) $32.00 A number of questions relating to the production and sale of Daks follow. Each question is independent.

Answer 1

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Andretti
Variable cost per unit
Direct Materials	8.50	A
Direct Labor	10.00	B
Variable Manufacturing overhead	3.30	C
Variable Selling Expenses	1.70	D
Total Variable cost per unit	23.50	E=A+B+C+D
Sell Price Per unit	48.00	F
Contribution Per unit	24.50	G=F-E
Number of Units	122,000.00	H
Contribution amount	2,989,000.00	I=G*H
Fixed cost
Fixed manufacturing overhead	610,000.00	J
Fixed selling expenses	427,000.00	K
Total Fixed cost	1,037,000.00	L=J+K
Net Income	1,952,000.00	M=I-L
Ans 1 a
Increase in Units	24,400.00	N=H*20%
Contribution Per unit	24.50	G
Contribution Amount	597,800.00	O=N*G
Extra selling expenses	140,000.00	P
Net Income	457,800.00	Q=O-P
Ans 1 b
The net income will increase by $ 457,800 so yes the additional investment is justified.
Ans 2- Foreign Market
Total Variable cost per unit	23.50	E
Less: Present Variable Selling Expenses	1.70	D
Add: Shipping costs	2.40
Add: Import Duties	1.70
Revised Variable cost per unit	25.90	R
Additional permits and licenses	12,200.00	S
Number of units	24,400.00	N
Permits and licenses cost per unit	0.50	T=S/N
Break-even price per unit	26.40	U=R+T
Ans 3- Seconds Units
Only Variable unit cost figure is relevant for setting a minimum selling price.
Total Variable cost per unit of $ 23.50 is the relevant minimum selling price.
Ans 4 a	Plant close
Number of units	20,333.33	V=H/12*2
Contribution Per unit	24.50	G
Contribution lost	498,166.67	W=U*G
Ans 4 b
Savings in Fixed manufacturing overhead by 35%	(35,583.33)	X=J/12*2*35%
Savings in Fixed selling expenses by 20%	(14,233.33)	Y=K/12*2*20%
Total fixed cost to be avoided	(49,816.67)
Net Financial disadvantage of closing the plant	448,350.00	Z=W+X+Y
Ans 4 c	25% capacity
Number of units	5,083.33	AA=H/12*2*30%
Contribution Per unit	24.50	G
Contribution earned	124,541.67	AB=AA*G
Fixed manufacturing overhead	101,666.67	AC=J/12*2
Fixed selling expenses	71,166.67	AD=K/12*2
Net Financial advantage at 25% capacity	48,291.67	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	8.50	A
Direct Labor	10.00	B
Variable Manufacturing overhead	3.30	C
Variable Selling Expenses	1.13	AF=D*2/3
Total Variable cost per unit	22.93	AG=A+B+C+AF
Fixed cost
Avoidable Fixed manufacturing overhead by 30%	(183,000.00)	AH=J*30%
Number of Units	122,000.00	H
Avoidable Fixed manufacturing overhead per unit	(1.50)	AI=AH/H
Avoidable cost per unit	21.43	AJ=AG+AI