Andretti Company has a single product called a Dak. The company normally produce
ID: 2412413 • Letter: A
Question
Andretti Company has a single product called a Dak. The company normally produces and sells 88,000 Daks each year at a selling price of $46 per unit. The company’s unit costs at this level of activity are given below: Direct materials $ 6.50 Direct labor 12.00 Variable manufacturing overhead 3.50 Fixed manufacturing overhead 6.00 ($528,000 total) Variable selling expenses 2.70 Fixed selling expenses 4.50 ($396,000 total) Total cost per unit $ 35.20 A number of questions relating to the production and sale of Daks follow. Each question is independent. Required: 1-a. Assume that Andretti Company has sufficient capacity to produce 105,600 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 20% above the present 88,000 units each year if it were willing to increase the fixed selling expenses by $110,000. Calculate the incremental net operating income. (Round your answers to the nearest whole number.)1-b. Would the increased fixed selling expenses be justified? No Yes 2. Assume again that Andretti Company has sufficient capacity to produce 105,600 Daks each year. A customer in a foreign market wants to purchase 17,600 Daks. Import duties on the Daks would be $4.70 per unit, and costs for permits and licenses would be $14,080. The only selling costs that would be associated with the order would be $2.80 per unit shipping cost. Compute the per unit break-even price on this order. (Round your answers to 2 decimal places.)
3. The company has 500 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 unit cost figure is relevant for setting a minimum selling price? (Round your answer to 2 decimal places.)
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%. What would be the impact on profits of closing the plant for the two-month period? (Any losses should be indicated by a minus sign. Round all calculations (intermediate and final) to whole numbers. Round unit calculations to whole numbers.)
5. An outside manufacturer has offered to produce 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. Compute the unit cost that can be avoided if purchased from the outside manufacturer. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
iPad 9:36 PM 66% Andretti Company has a single product called a Dak. The company normally produces and sells 88,000 Daks each year at a selling price of $46 per unit. The company's unit costs at this level of activity are given below Direct materials Direct labor Fixed manufacturing overhead Variable seling expenses Fixed seling expenses Total cost per unit 12.00 3.50 6.00 ($528.000 total) 2.70 4.50 ($306,000 total) S 35.20 A number of questions relating to the production and sale of Daks follow. Each question is independent Required: 1-a. Assume that Andretti Company has sufficient capacity to produce 105,600 Daks each year without any increase in fixed manufacturing overhead costs. The company cod, increase its sales by 20% above the present 88.000 unts each year if it were willing to increase the foxed selling expenses by $110,000, Caloulate the incremental net operating income. (Round your answers to the nearest whole number.) ncreased sales in Contribution margin per uni Less added ixed selling expense ncremental net operating income 1-b. Would the increased fixed selling expenses be justfied? 2. Assume again that Andrets Company has suficient capacity to produce 105,600 Daks each year. A customer in a foreign market wants to purchase 17,600 Daks. Import duties on the Daks would be $4.70 per un and costs for pemnits and licenses would be $14,080 The only seling costs that would be associated with the order wouild be $2 80 per unit shipping cost. Compute the per unit break-even price on this order. (Round your answers to 2 decimal places.) Variable manufacturing cost per unt mport duties per unit Permits and licenses Shipping cost per unit Break-even price per unit 3. The company has 500 Daks on hand that have some irregularites and are therefore considered to be "seconds. Due to the irregulanities twill be impossible to sell these units at the normal price through regular distribution channels. What unilt cost figure is relevant for setting a minimum seling price? (Round your answer to 2 decimal places.) 4. Due to a strike in its supplier's plant, Andres Company is unabile 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. the plant were closed, fixed manufacturing
Explanation / Answer
Requirement 1-a.
1 - b. : Yes.
2.
3.
The only relevant cost is the selling expenses of $ 2.70 per unit. All variable manufacturing costs are sunk costs ( already incurred).
The fixed manufacturing and selling expenses too are not relevant, as they remain unchanged irrespective of the decision taken.
4.
* Normal capacity for two months = ( 88,000 / 12 ) * 2 = 14,667 units
25 % of normal capacity for two months = 14,667 x 25 % = 3,666.75 or 3,667 units.
The impact of closing the plant for two months on profits is that losses will increase by $ 7,707.
5.
The outside manufacturer's quotation must be less than $ 24.70.
Increased sales in units ( 88,000 x 20%) 17,600 Contribution margin per unit $ 21.30 Incremental contribution margin $ 374,880 Less: Added fixed selling expenses 110,000 Incremental net operating income $ 264,880