Question

Andretti Company has a single product called a Dak. The company normally produces and sells 124,000 Daks each year at a selling price of $46 per unit. The company's unit costs at this level of activity are given below $ 7.50 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit 3.00 4.00 (5496,000 total) 3.79 5.50 (5682,800 total) $32.70 A number of questions relating to the production and sale of Daks follow Each question is independent

Answer 1

Value given
Direct materials	7.50
Direct labor	9.00
Variable manufacturing overhead	3.00
Fixed manufacturing overhead	4.00	($ 496,000 total)
Variable selling expenses	3.70
Fixed selling expenses	5.50	($ 682,000 total)
Normal production	124000 units annually
4)
If Andrette Company operates at 25% of normal level
Normal annual production	124,000
Normal monthly production	124000/12
	10,333.33
Annual fixed overheads	496,000
Monthly fixed overheads	496000/12
	41,333.33
Annual fixed selling expenses	682,000
Monthly fixed selling expenses	682000/12
	56,833.33
Particulars	Monthly	2 Months
25% of normal monthly production	2,583.33	5,166.66
Monthly fixed overheads	41,333.33	82,666.66
Monthly fixed selling expenses	56,833.33	113,666.66
a)
Statement showing total contribution margin
Particulars	Amount	Per unit
Sales (5166.66 *$46)	237,666.36	46.00
Less:
Direct materials	38,749.95	7.50
Direct labor	46,499.94	9.00
Variable manufacturing overhead	15,499.98	3.00
Fixed manufacturing overhead	82,666.66	16.00
Variable selling expenses	38,749.95	7.50
Fixed selling expenses	113,666.66	22.00
Contribution	(98,166.78)	(19.00)
b)
Fixed manufacturing overheads would be 30% of normal level
= $ 82,666.66 *30%
= $ 24800
Fixed selling overheads would be reduced by 20%
= 113,666.66 *20%
= $ 22733.33
Fixed selling overheads incurred during shutdown
= $ 113,666.66 - $ 22,733.33
= $ 90933.33
Total fixed costs avoided during shutdown
Particulars	Normal	Incurred	Avoided
Fixed manufacturing overhead	82,666.66	24,800.00	57,866.66
Fixed selling expenses	113,666.66	90,933.33	22,733.33
Total	196,333.32	115,733.33	80,599.99
c)
Foregone contribution margin	98,166.78
Total avoidable fixed costs	115,733.33
	(17,566.55)
d)
If Andretti Company closes the plant for two months it would incur an
additional cost of $ 17,566.55 compared to running the plant at 25%
capacity.Hence, the company should not close the plant
Ans - NO
5)
Statement of avoidable costs
Particulars	Avoidable Costs
Direct Materials	930,000.00
Direct Labour	1,116,000.00
Variable manufacturing overhead	372,000.00
Fixed manufacturing overhead	347,200.00
Variable selling expenses	458,800.00
Fixed selling expenses	454,666.67
Total annual cost	3,678,666.67
No. of units produced	124,000.00
Avoidable cost per unit	29.67