Andretti Company has a single product called a Dak. The company normally produce
ID: 2498173 • 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.)
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:
Explanation / Answer
Answer: Relevant costs avoided by purchasing from outside supplier:
Direct material=$8.50
Direct labor=$11.00
Variable overhead=$2.20
variable s&a =$1.57 ($4.70*1/3)
Fixed overhead=$1.8 [(492000*0.30)/82000]
Total=$25.07
The outside supplier’s quote must be less than $25.07 per unit in order to purchase from it.