Question

Andretti Company has a single product called a Dak. The company normally produces and sells 60,000 Daks each year at a selling price of $32 per unit. The company's unit costs at this level of activity are given below: Direct mnaterials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit S 10.00 4.50 2.30 5.00 ($300,000 total) 1.20 3.50 ($210,000 total) S 26.50 A number of questions relating to the production and sale of Daks follow. Each question is independent. Required 1-a. Assume that Andretti Company has sufficient capacity to produce 90,000 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $80,000. Calculate the incremental net operating income. Increased sales in units Contribution margin per unit Incremental contribution margin Less added fixed selling expense Incremental net operating income 1-b. Would the increased fixed selling expenses be justified? No Yes 2. Assume again that Andretti Company has sufficient capacity to produce 90,000 Daks each year. A customer in a foreign market wants to purchase 20,000 Daks. Import duties on the Daks would be $1.70 per unit, and costs for permits and licenses would be $9,000. The only selling costs that would be associated with the order would be $3.20 per unit shipping cost. Compute the per unit break-even price on this order. (Round your answers to 2 decimal places.) Variable manufacturing cost per unit Import duties per unit Permits and licenses Shipping cost per unit Break-even price per unit

Answer 1

		Contribution margin
		selling price per unit				32
		less Variable expenses
		direct materials			10
		direct labor			4.5
		Variable manufacturing overhead			2.3
		variable selling expense			1.2	18
		Contribution margin per unit				14
	Req 1A	increased sales in units			(60,000*25%)		15000
		contribution margin per unit					14
		incremental contribution margin					210000
		less added fixed selling expense					80,000
		incremental net operarting income					130,000
	1-b)	Yes
	Req 2	Break even price per unit
		Variable manufacturing cost per unit			16.8
		Shipping cost			3.2
		import duties			1.7
		permits &licences			0.45
		Break even price per unit			22.15	answer