Andretti Company has a single product called a Dak. The company normally produce
ID: 2436433 • Letter: A
Question
Andretti Company has a single product called a Dak. The company normally produces and sells 83,000 Daks each year at a selling price of $58 per unit. The company’s unit costs at this level of activity are given below:
A number of questions relating to the production and sale of Daks follow. Each question is independent.
Required:
5. An outside manufacturer has offered to produce 83,000 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?
Direct materials $ 7.50 Direct labor 11.00 Variable manufacturing overhead 2.50 Fixed manufacturing overhead 6.00 ($498,000 total) Variable selling expenses 4.70 Fixed selling expenses 2.50 ($207,500 total) Total cost per unit $ 34.20Explanation / Answer
5) Variable manfuacturing costs 21 fixed manufacturing overhead cost (6*30%)= 1.8 variable selling expense 4.7*1/3 1.57 total costs avoided 24.37