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Andretti | ||
Variable cost per unit | ||
Direct Materials | 8.50 | A |
Direct Labor | 9.00 | B |
Variable Manufacturing overhead | 3.40 | C |
Variable Selling Expenses | 2.70 | D |
Total Variable cost per unit | 23.60 | E=A+B+C+D |
Sell Price Per unit | 44.00 | F |
Contribution Per unit | 20.40 | G=F-E |
Number of Units | 124,000.00 | H |
Contribution amount | 2,529,600.00 | I=G*H |
Fixed cost | ||
Fixed manufacturing overhead | 372,000.00 | J |
Fixed selling expenses | 682,000.00 | K |
Total Fixed cost | 1,054,000.00 | L=J+K |
Net Income | 1,475,600.00 | M=I-L |
Ans 1 a | ||
Increase in Units | 31,000.00 | N=H*25% |
Contribution Per unit | 20.40 | G |
Contribution Amount | 632,400.00 | O=N*G |
Extra selling expenses | 100,000.00 | P |
Net Income | 532,400.00 | Q=O-P |
Ans 1 b | ||
The net income will increase by $ 532,400 so yes the additional investment is justified. | ||
Ans 2- Foreign Market | ||
Total Variable cost per unit | 23.60 | E |
Less: Present Variable Selling Expenses | 2.70 | D |
Add: Shipping costs | 1.30 | |
Add: Import Duties | 4.70 | |
Revised Variable cost per unit | 26.90 | R |
Additional permits and licenses | 18,600.00 | S |
Number of units | 31,000.00 | N |
Permits and licenses cost per unit | 0.60 | T=S/N |
Break-even price per unit | 27.50 | U=R+T |
Ans 3- Seconds Units | ||
Only Variable unit cost figure is relevant for setting a minimum selling price. | ||
Total Variable cost per unit of $ 23.60 is the relevant minimum selling price. | ||
Ans 4 a | Plant close | |
Number of units | 20,666.67 | V=H/12*2 |
Contribution Per unit | 20.40 | G |
Contribution lost | 421,600.00 | W=U*G |
Ans 4 b | ||
Savings in Fixed manufacturing overhead by 35% | (21,700.00) | X=J/12*2*35% |
Savings in Fixed selling expenses by 20% | (22,733.33) | Y=K/12*2*20% |
Total fixed cost to be avoided | (44,433.33) | |
Net Financial disadvantage of closing the plant | 377,166.67 | Z=W+X+Y |
Ans 4 c | 25% capacity | |
Number of units | 5,166.67 | AA=H/12*2*25% |
Contribution Per unit | 20.40 | G |
Contribution earned | 105,400.00 | AB=AA*G |
Fixed manufacturing overhead | 62,000.00 | AC=J/12*2 |
Fixed selling expenses | 113,666.67 | AD=K/12*2 |
Net Financial advantage at 25% capacity | 70,266.67 | AE=AB-AC-AD |
Ans 4 d | ||
So Andretti should not close the plant for two months but operate it at 25% capacity. | ||
Ans 5 | ||
Variable cost per unit | ||
Direct Materials | 8.50 | A |
Direct Labor | 9.00 | B |
Variable Manufacturing overhead | 3.40 | C |
Variable Selling Expenses | 1.80 | AF=D*2/3 |
Total Variable cost per unit | 22.70 | AG=A+B+C+AF |
Fixed cost | ||
Avoidable Fixed manufacturing overhead by 30% | (111,600.00) | AH=J*30% |
Number of Units | 124,000.00 | H |
Avoidable Fixed manufacturing overhead per unit | (0.90) | AI=AH/H |
Avoidable cost per unit | 21.80 | AJ=AG+AI |
Andretti Company has a single product called a Dak. The company normally produces and sells 124,000 Daks each year...
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