Andretti Company has a single product called a Dak. The company normally produce
ID: 2450491 • Letter: A
Question
Andretti Company has a single product called a Dak. The company normally produces and sells 80,000 Daks each year at a selling price of $42 per unit. The company's unit costs at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing Variable selling expenses Fixed selling expenses $ 9.50 9.00 3.70 7.00 ($560,000 total) 4.70 5.50 ($440,000 total) overhead Total cost per unit $ 39.40 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 108,000 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 35% above the present 80,000 units each year if it were willing to increase the fixed selling expenses by $120,000. Calculate the incremental net operating income. (Round all dollar amounts to 2 decimal laces.) Increased sales in units Contribution margin per unit Incremental contribution margin Less added fixed selling expense Incremental net operating income 0.00Explanation / Answer
1. increased sale unit(108000 units - 80000units) 28000 units
contribution margin per unit ($ 42 - $26.9) $15.1 per unit
Incremental contribution margin (28000units *$15.1) $ 422800
Less: Increased fixed selling expenses ($ 120000)
Incremental operating income $ 3028000
Note: variable cost
Direct material $9.5
Direct labour $9.00
Variable manufacturing overhead $3.70
Variable selling expense $4.7
Total variable cost $ 26.9
2. variable manufacture cost per unit ($3.70 * 28000 units) $103600
Import duties per uint (3.70 * 28000 units) $103600
permits and license $16800
shipping cost ($1.5 * 28000 units) $42000
total cost $266000
Break even price per unit ($266000 / 28000units) $9.5 per unit