Andretti Company has a single product called a Dak. The company normally produce
ID: 2472213 • 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 $44 per unit. The company’s unit costs at this level of activity are given below:
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.)
Variable manufacturing cost:
fixed manufacturing overhead cost:
variable selling expense:
total costs avoided:
Direct materials $ 8.50 Direct labor 9.00 Variable manufacturing overhead 3.70 Fixed manufacturing overhead 5.00 ($410,000 total) Variable selling expenses 2.70 Fixed selling expenses 5.50 ($451,000 total) Total cost per unit $ 34.40Explanation / Answer
The relevant costs are Direct material 8.5 Direct labor 9 Variable Overhead 3.7 Variable Selling 2.7 Tota Variabe 23.9 Relevant 23.9*2/3 15.93 Fixed Manufacturing 5*70% 3.5 Fixed Selling 5.5 Total relevant cost 24.93 15.93+3.5+5.5