Andretti Company has a single product called a Dak. The company normally produce
ID: 2416380 • Letter: A
Question
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 $46 per unit. The company’s unit costs at this level of activity are given below:
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 sales by 30% above the present 89,000 units each year if it were willing to increase the fixed selling expenses by $110,000. Calculate the incremental net operating income. (Round all dollar amounts to 2 decimal places.)
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. Import duties on the Daks would be $1.70 per unit, and costs for permits and licenses would be $16,020. The only selling costs that would be associated with the order would be $2.40 per unit shipping cost. Compute the per unit break-even price on this order. (Round your answers to 2 decimal places.)
The company has 400 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.)
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 40% 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? (Enter losses/reductions with a minus sign. Round all calculations (intermediate and final) to whole numbers. Round unit calculations to whole numbers.)
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 is relevant for comparison to the price quoted by the outside manufacturer. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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 $46 per unit. The company’s unit costs at this level of activity are given below:
Explanation / Answer
1. A.
Before increase in selling expenses
Variable cost per unit = direct material (8.50)+direct labour (8.00)+variable OH (2.00)+variable s&p(3.70)
=22.20per unit
Fixed expense= fixed overhead (712000)+fixed s&p(400500)
= $1112500
Net income:-
After increase in fixed selling expenses:-
Variable expenses will be same as 22.20 per unit
Fixed expense= fixed overhead (712000)+fixed s&p(510500)
= $1222500
Net income:-
=22.60per unit
Fixed cost =$ 160200
Minimum selling price should be set at break even point.
Break even is when TR =TC
Let x is equal unit selling price per unit
TR= TC
Quantity*selling price= quantity*variable expenses + fixed cost
26700*x = 26700*22.60+16020
x = 23.20 per unit
Break even price on this order is 23.20 per unit
3.
The relevant cost figure is 3.70 per unit ,which is variable selling expenses pet dak, since the irregular units have already been produced. All producing costs (including variable production costs) are sunk. Fixed selling expenses are not relevant since they will not change regardless of whether or not the irregular units are sold.
4.
Continue producing:-
89000*2/12= 14833 units
14833*.25 =3708 units produced and sold
Net Income
Sales (89000*46) 4094000 Variable cost (89000*22.20) 1975800 CM 2118200 Fixed cost 1112500 Net Income 1005700