Andretti Company has a single product called a Dak. The company normally produces and sells 86,000 Daks each year at a selling price of $58 per unit. The company’s unit costs at this level of activity are given below:
Calculation of contribution margin per Dak |
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Selling price |
58 |
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Less: variable costs |
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Direct Material |
9.50 |
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Direct Labor |
11 |
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Variable Overhead |
3.50 |
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Variable Selling Expenses |
4.70 |
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Total Variable cost |
28.7 |
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Contribution Margin per Unit |
29.3 |
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1-a Financial Advantage = Additional contribution Margin - Increased expenses |
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=25,800*29.3– 100,000 = $655,940 |
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1-B yes, since benefit |
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2.Calculation of break even price |
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Direct Material |
9.50 |
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Direct Labor |
11 |
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Variable Overhead |
3.5 |
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Import Duties |
1.70 |
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Selling expenses |
1.70 |
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Total variable cost |
27.4 |
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Break even price = 27.4 + 20640/25,800 = $28.2 |
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3.Relevant cost is the variable selling expense since manufacturing cost has already been incurred i.e. $4.70 per unit |
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Operating level = 86,000*25%*2/12 = 3583.33 units |
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4-a. Contribution margin foregone = 3583*29.3 = $104,981.9 |
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4-b Fixed cost avoided = 774,000*70%*2/12 + 387,000*20%*2/12 = $103,200 |
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c.Advantage of closing = 103,200 – 104,981.9 = $(1,781.9) i.e. disadvantage |
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d.No, should not be closed |
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5.Calculation of avoidable cost |
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Direct Material |
9.5 |
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Direct Labor |
11 |
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Variable Overhead |
3.50 |
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Avoidable Fixed manufacturing overhead |
2.7 |
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Variable selling expenses avoided |
1.57 |
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Avoidable cost per unit |
28.27 |
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Andretti Company has a single product called a Dak. The company normally produces and sells 86,000...
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Andretti 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: $ 7.50 10.00 Direct materials Direct labor Variable manufacturing overhead Fixed Ranfacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit 6.00 ($516,000 total) 3. 70 3.00 ($258.000 total) $ 33,40 A number of questions relating to the production...
Andretti 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: $ 7.50 10.00 Direct materials Direct labor Variable manufacturing overhead Fixed Ranfacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit 6.00 ($516,000 total) 3. 70 3.00 ($258.000 total) $ 33,40 A number of questions relating to the production...
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