Solution
1.a.
Selling price per unit=$50
Less variable expenses per unit(7.50+12+2.70+2.70) =$24.90
Contribution margin per unit=$50-$24.90
=$25.10
|
1.b yes as it gives incremental net operating income of $482,520.
2.
Variable manufacturing cost per unit (7.50+12+2.70) |
$22.20 |
Import duties per unit |
$4.70 |
Permits and licenses(20,160/25,200) |
$0.80 |
Shipping cost per unit |
$1.90 |
Break-even price per unit on this order |
$29.60 |
3. The relevant cost is $2.70 pet unit which is the variable selling expense per Dak. Since irregular units have already been produced, all production costs are sunk. The fixed selling expense are not relevant because they will not change regardless the irregular units are sold or not.
4.
If the plant operates at 25% of normal levels , then only 3,542 units will be produced and sold during the two month period.
=(84000×2/12)×25%
=3,500 units
(a)Contribution margin lost(3500×$25.10) |
$(87,850) | |
Fixed costs(avoidable): |
||
Fixed manufacturing overhead cost [(420,000×2/12)×60%] |
$42,000 | |
Fixed selling cost[(462,000×2/12)×20%) |
$15,400 |
$57,400(b) |
Net disadvantage of closing the plant(c) |
$(30,450) |
D. No. The company should not close the plant as there is $30,450 net disadvantage in closing the plant
Andretti Company has a single product called a Dak. The company normally produces and sells 84,000 Daks each year at a selling price of $50 per unit.
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