Solution 1-a: | ||
Computation of Contribution Margin per unit | ||
Selling price per unit | 56.00 | |
Less: variable expenses: | ||
Direct materials | 6.50 | |
Direct labor | 9.00 | |
Variable manufacturing Overhead | 2.50 | |
Variable selling expense | 4.70 | 22.70 |
Contribution margin per unit | 33.30 | |
Increased Sales In units (84000*40%) | 33600 | |
Contribution margin per unit | 33.3 | |
Incremental Contribution margin | 1118880 | |
Less: Added Fixed selling expense | 120000 | |
Incremental Net Operating Income | 998880 | |
Solution 1-b: | ||
Yes, Additional investment would be justified. | ||
Solution 2: | ||
Variable Manufacturing Cost per unit | 18.00 | |
Import Duties per unit | 4.70 | |
Permits and licenses ($16800/33600) | 0.50 | |
Shipping cost per unit | 2.10 | |
Break even price per unit | 25.30 | |
Solution 3: | ||
Relevant unit cost (Variable selling expesne) | 4.70 | |
Solution 4: (a, b, c, d) | ||
Units for two months (84000*25%*2/12) | 3500 | |
Contribution margin per unit | 33.30 | |
Contribution margin forgone (a) | 116550 | |
Fixed costs: | ||
Fixed manufacturing overhead cost ($336000*2/12*60%) | 33600 | |
Fixed selling cost ($252000*2/12*20%) | 8400 | |
Total Fixed cost Avoidance | 42000 | |
Net Advantage (disadvantage) of closing the plant (c )= b-a | -74550 | |
Should Andretti close the plant for Two months? (d) | No | |
Solution 5: | ||
Variable manufacturing cost | 18.00 | |
Fixed manufacturing overhead cost ($4*30%) | 1.20 | |
Variable selling expense ($4.70*1/3) | 1.57 | |
Total Costs Avoided | 20.77 |
Andretti Company has a single product called a Dak. The company normally produces and sells 84,000...
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