Question

Problem 12-18 Relevant Cost Analysis in a variety of Situations (L012-2, L012-3, L012-4) Andrett Company has a single product called a Dak. The company normally produces and sells 86,000 Daks each year at a selling price of $60 per unit. The company's unit costs at this level of activity are given below. Direct materials $ 9.50 Direct labor 10.00 Variable manufacturing 2.00 overhead Tixed manufacturing overhead total) Variable selling expenses 2.70 Tixed selling expenses 4.00 ($344,000 total) Total cost per unit $37.20 9.00 ($774,000 A number of questions relating to the production and sale of Daks follow. Each question is independent Required: 5. An outside manufacturer has offered to produce 86.000 Daks and ship them directly to Andret's customers Andretti Company accepts this offer the facilities that it uses to produce Daks would be ide: however feed manufacturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. What is Andretu's avoidable cost per unit that it should compare to the price quoted by the outside manufacturer?

Answer 1

Direct materials	9.50
Direct labor	10
Variable manufacturing overhead	2
Fixed manufacturing overhead ( 9 x 30%)	2.70
Variable selling expenses ( 2.70 x 1/3)	0.90
Available cost per unit	$25.10

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