Andretti Company has a single product called a Dak. The company normally produce
ID: 2429889 • Letter: A
Question
Andretti Company has a single product called a Dak. The company normally produces and sells 82,000 Daks each year at a selling price of $48 per unit. The company's unit costs at this level of activity are given below $ 9.50 9.00 2.00 Variable manufacturing overhead Variable selling expenses Total cost per unit ad 18.00 (5820,90o total) 2.70 5.58 ($451,ee0 total) 38.70 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 106,600 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales willing to increase the fixed selling expenses by $140.000. What is the financial advantage (disadvantage) of investing an additional $140,000 in fixed selling expenses? 1-b. Would the additional investment be justified? by 30% above the present 82,000 units each year if it were sume again that Andretti Company has sufficient capacity to produce 106.600 Daks each year. A customer in a foreign market would have to pay import duties on the Daks of $470 per unit wants to purchase 24,600 Daks. If Andretti accepts this order it additional $14,760 for permit shipping cost. What is the break-even price per unit on this order? 3. The company has 600 Daks on hand that have some irregularities and are therefore considered to be 'seconds- Due to ts and licenses. The only selling costs that would be associated with the order would be $260 per unit impossible to sell these units at the normal price through reqular distribution channels. What is the unit cost K Prey 4 of 4E NextExplanation / Answer
1a:
1b: As incremental net operating income>0 the additional investment will be justified.
Calculations:
2.
Explanation: Variable manufacturing costs per unit = 9.5+9+2 = 20.5
Permits and licenses per unit = $14760/24600 = $0.60
3. The relevant cost per unit = $2.70 per unit. This is the variable selling expense per unit. Here all production costs will be regarded as sunk costs.
4. No. of units produced for 2 months at 25% = 82,000/12*25%*2 = 3416.67 units
Thus contribution margin lost = 3416.67 units*24.80 = $84,733.33
Fixed mfg. overhead cost = 820,000*2/12*0.7 = 95,666.67
Fixed selling cost = 451,000*2/12*0.2 = 15,033.33
4a = 84,733.33
4b = 110,700
4c = Advantage = $25,966.67
4d = Yes as there is an advantage
5.
Explanation:
Fixed mfg. overhead cost = 820000*0.3/ 82000 = 3
Variable selling exp = 2.7/3 = 0.9
Increased sales in units 24,600.00 Contribution margin per unit 24.80 Incremental contribution margin 610,080.00 Less: added fixed selling expenses 140,000.00 Incremental net operating income 470,080.00