Question

Andretti Company has a single product called a Dak. The company normally produces and sells 88,000 Daks each year at a selling price of $64 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 $ 9.50 11.00 1.80 7.00 ($616,000 total) 2.70 4.00 ($352,000 total) $36.00 A number of questions relating to the production and sale of Daks follow. Each question is independent.
Need help with Questions 4-5

Answer 1

Solution 4:

Computation of Contribution Margin per unit
Selling price per unit		64.00
Less: variable expenses:
Direct materials	9.50
Direct labor	11.00
Variable manufacturing Overhead	1.80
Variable selling expense	2.70	25.00
Contribution margin per unit		39.00

Units for two months (88000*25%*2/12)	3667
Contribution margin per unit	$39
Contribution margin forgone (a)	$143,000
Fixed costs:
Fixed manufacturing overhead cost (616000*2/12*65%)	$66,733
Fixed selling cost ($352000*2/12*20%)	$11,733
Total Fixed cost Avoidance (b)	$78,467
Net Advantage (disadvantage) of closing the plant (c )= b-a	-$64,533
Should Andretti close the plant for Two months? (d)	No

Solution 5:

Variable manufacturing cost	22.30
Fixed manufacturing overhead cost ($7*30%)	2.10
Variable selling expense ($2.70*1/3)	0.90
Total Costs Avoided	25.30