Andretti Company has a single product called a Dak. The company normally produce
ID: 2475774 • Letter: A
Question
Andretti Company has a single product called a Dak. The company normally produces and sells 81,000 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
$
8.50
Direct labor
8.00
Variable manufacturing overhead
2.80
Fixed manufacturing overhead
6.00
($486,000 total)
Variable selling expenses
3.70
Fixed selling expenses
5.50
($445,500 total)
Total cost per unit
$
34.50
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 101,250 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the present 81,000 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 places.)
Increased sales in units: ?
Contribution margin per unit: ?
Incremental contribution margin: ?
Less added fixed selling expense: ?
Incremental net operating income: ?
2.
Assume again that Andretti Company has sufficient capacity to produce 101,250 Daks each year. A customer in a foreign market wants to purchase 20,250 Daks. Import duties on the Daks would be $3.70 per unit, and costs for permits and licenses would be $10,125. The only selling costs that would be associated with the order would be $1.40 per unit shipping cost. Compute the per unit break-even price on this order. (Round your answers to 2 decimal places.)
Variable manufacturing cost per unit: ?
Import duties per unit: ?
Permits and licenses: ?
Shipping cost per unit: ?
Break-even price per unit: ?
3.
The company has 600 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.)
4.
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 35% 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.)
Contribution margin lost: ?
Fixed manufacturing overhead cost: ?
Fixed selling cost: ?
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 costs: ?
Fixed manufacturing overhead cost: ?
Variable selling expense: ?
Andretti Company has a single product called a Dak. The company normally produces and sells 81,000 Daks each year at a selling price of $42 per unit. The company’s unit costs at this level of activity are given below:
Explanation / Answer
Answer:1-a
Answer:2
Answer:3 The relevant cost is $3.70 per unit, which is the variable selling expense per Dak. Because the irregular units have already been produced, all production costs (including the variable production costs) are sunk. The fixed selling expenses are not relevant because they will be incurred whether or not the irregular units are sold. Depending on how the irregular units are sold, the variable expense of $3.70 per unit may not even be relevant. For example, the units may be disposed of through a liquidator without incurring the normal variable selling expense.
Increased sales unit 20250 Particulars Amount Selling price 850500 Less: variable cost Direct material 172125 Direct labor 162000 Variable manufacturing overhead 56700 Fixed manufacturing overhead 0 Increased contribution margin 459675 Less: Added Fixed selling exp 120000 Less: variable selling exp 74925 Incremental net operating income 264750