Question

10 Check my work 2 Andretti Company has a single product called a Dak. The company normally produces and sells 89,000 Daks each year at a selling price of $62 per unit. The company's unit costs at this level of activity are given below: 5 Direct materials $9.50 points Direct labor 12.00 Variable manufacturing overhead 2.90 Fixed manufacturing overhead .. ($534,000 total) eBook g expenses Fixed selling expenses 3.50 ($311,500 total) Print $35.60 Total cost per unit References A number of questions relating to the production and sale of Daks follow. Each question is independent. 10 Check my work 2 Required: 1-a. Assume that Andretti Company has sufficient capacity to produce 115,700 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 30% above the present 89,000 units each year if were willing to increase the fixed selling expenses by $130,000. What is the financial advantage (disadvantage) of investing an additional $130,000 in fixed selling expenses? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 115,700 Daks each year. A customer in a foreign market wants to purchase 26,700 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $2.70 per unit and an additional $16,020 for permits and licenses. The only selling costs that would be associated with the order would be $2.60 per unit shipping cost. What is the break-even price per unit on this order? 3. The company has 900 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? 4. 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 closed, 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. 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? . What is the financial advantage (disadvantage) of closing the plant for the two-month period? d. Should Andretti close the plant for two months? 5 points Daks eBook Print References 5. An outside manufacturer has offered to produce 89,000 Daks and ship them directly to Andretti's customers. If Andretti Company accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed 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 Andretti's avoidable cost per unit that it should compare to the price quoted by the outside manufacturer?

Answer 1

solution la) selling price 62.00 Less: variable expense Direct material 9.50 direct labor 12.00 variable manufacturing ovehe ad 2.90 variable selling expense 1.70 Total variable expense 26.10 Contribution margin 35.90 xnumber additional units sold (89000*30%) 26,700 Additional Contribution margin 958,530 Less: additional fixed selling expense 130,000 financial advantage (disadvantage) 828,530 1b) Yes as it result in financial advantage of $828530. 2) variable manufacturing cost per unit calculation 9.5+12+2.9 24.40 import duties perunit permits and licence shipping cost per unit 2.70 |16020/26700 0.60 2.60 bre ak even price perunit 30.30 3) 1.70perunit relevant unit cost per unit (only variable selling cost would be relevant)

4) calculation a.Forgone contribution margin 89000*0.25*35.90*2/12 133,129.17 b.fixed costthat can be avoided 534000*0.65*2/12 fixed manufacturing overhead cost fixed selling cost 57,850.00 311500 0.2*2/12 10,383.33 68,233.33 c.financial advantage (disadvantage) 64,895.83 d) No, as it result in financial di sadvantage of $64895.83. calculation 5 variable manufacturing cost 9.5+12+2.9 24.40 fixed manufacturing overhead cost 6*0.3 1.80 variable selling expense 1.7*1/3 0.57 Avoidable cost per unit 26.77