Question

ACTIVITY I Practice Problems Help Problem 12-18 Relevant Cost Analysis in a Variety of Situations [L012-2, LO12-3, LO12-4] Andretti Company has a single product called a Dak. The company normally produces and sells 81,000 Daks each year at a selling price of $62 per unit. The company's unit costs at this level of activity are given below: points s 9.50 Direct labor 10.00 3.40 8.00 ($648,000 total) 2.70 Variable manufacturing overhead Fixed manufacturing overhead 3.00 Fixed selling expenses 3.00 ($243,000 total) $36.60 Total cost per unit Print A number of questions relating to the production and sale of Daks follow. Each question is independent. 1-a. Assume that Andretti Company has sufficient capacity to produce 105,300 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 30% above the present e 000 units each year in wee lling to increase the fixed selling expenses by $140,000. What is the financial advantage (disadvantage) of investing an additional $140,000 in fixed selling expenses? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 105,300 Daks each year. A customer in a foreign market wants to purchase 24,300 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $2.70 per unit and an additional $17010 for permits and licenses. The only selling costs that would be associated with the order would be $2.30 per unit shipping cost. What is the break-even price per unit on this order? 3. The company has 800 Daks on hand that have some irregularities and are therefore considered to be seconds." Due to the regularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost gure that is relevant for setting a minimum selling price? Due to a strike in its supplier's plant Andretti Company is unable to purchase more material for the production of Daks. The strike i expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturi r normal level during the two-month period and the fixed selling expenses would be overhead costs would continue at 35% of thei reduced by 20% during the two-month period a. How much total contribution margin will Andretti forgo if it closes the plant for twdmonths? b. How much total fixed cost will the company avoid if it closes the plant for two months? c. What is the financial advantage (disadvantage) of closing the plant for the two-month period? d. Should Andretti close the plant for two mogths? facturer has offered to produce 81,000 Daks and ship them directly to Andretti's customers. If Andretti Company 5. An outside manufacturer has offered to produce 81,000 Daks and ship them directly to Andretti's customer accepts this offer, the facilities that it uses to produce Daks would be idle: however, fixed manufacturing overhead costs would be educed by 30%. Because the thirds of their present amount. What is Andretti's avoidable cost per unit that it should compare to the price quoted by manufacturer? outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two- Req 3 Req 4A to 4C Req 4D Req 2 Req 18 Req s Req 1A es Company has sufficient capacity to Assume that Andretti produce 105,300 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 30% above the present 81,000 units each year if it were willing to increase the fixed selling expenses by $140,000. What is the financial advantage (disadvantage) of investing an additional $140,000 in fixed selling expenses? Show lessA Req 1B > Req IA Req 1Reco Req 5 Req 3 Req 4A to 4C Req 4D 105,300 Daks each year. A customer in a foreign that A e again market wants to purchase 24,300 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $2.70 per unit and an additional $17,010 for permits and licenses. The only selling costs that would be associated with the order would be $2.30 per unit shipping cost. What is the break-even price per unit on this order? (Round your answers to 2 decimal places.) Show lesS Req 3 > Req 1B Complete this question by entering your answers in the tabs below Req 1A Req 18 Req 2 Req 3 Req 4A to 4C Req 4D Req 5 The company has 800 Daks on hand that have some irregularities and are therefore considered to be "seconds. Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure that is relevant for setting a minimum selling price? (Round your answer to 2 decimai piaces.) unit per unit man Complete this question by entering your answers in the tabs below. points Req 4D Req 3Req 4A to 4C Req s Req 2 Due to a strike in its supplier's plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were dosed, fixed manufacturing overhead costs would continue at 35% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two-month period. (Round number of units produced to the nearest whole number. Round your intermediate calculations and final answers to 2 decimal places, Any losses/reductions should be indicated by a minus sign.) Print a. How much total contribution margin will Andretti forgo if it closes the plant for two months? b. How much total fixed cost will the company avoid if it closes the plant for two months? c. What is the financial advantage (disadvantage) of closing the plant for the two-month period? Show lessA CReq 3 Req 4D> Req 5 Req 2 Req 4D Req 4A to 4C Req 1B Req 3 Req 1A to produce 81,000 Daks and ship them directly to Andretti's customers. If Andretti An outside manufacturer has o ny accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by 30% expenses would be only two-thirds of their present amount. What is Andretti's avoidable cost per unit that it should compare to the price quoted by the outside manufacturer? (Do not round intermediate calculations. Round your answers to 2 decimal places.) se the outside manufacturer would pay for all shipping costs, the variable selling . Becaus Show lessa Req 4D

Answer 1

Solution

1.a.

Statement showing financial advantage or disadvantage of increased fixed selling expenses:

Particulars	Amount ($)
Direct material	9.50
Direct labor	10.0
Manufacturing overhead	3.40
Variable selling and Admin overhead	2 70
Total product cost per unit(a)	25.60
Less: sales price (b)	62
Contribution per unit(b-a)	36.40
Total incremental contribution (81000×30%×36.40)	884,520
Less: Increased Fixed selling cost	140,000
Net incremental profit on increased sale	744,520

1.b There is increase in revenue by $744, 520. So additional investment is justified.

2. Break even price per unit:

Statement showing break even price for import order:

Particulars	Amount ($)
Variable cost of production per unit:
Direct material per unit	9.50
Direct labor	10.0
Variable manufacturing overhead	3.40
Variable selling expense	2.30
Import duty	2.70
Total cost per unit	27.90
Fixed costs:
Import license cost	17010
Total fixed cost	17010
Break even selling price per unit(17010+27.90×24300)/24300	28.60 per unit

3.

For these units, relevant cost is the disposal cost and any further cost. The cost incurred on production of these units is irrelevant cost as it is the sunk cost now