Andretti Company has a single product called a Dak. The company normally produce
ID: 2510485 • Letter: A
Question
Andretti Company has a single product called a Dak. The company normally produces and sells 87,000 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 87,000 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 $ 8.50 Direct labor 11.00 Variable manufacturing overhead 2.10 Fixed manufacturing overhead 4.00 ($348,000 total) Variable selling expenses 3.70 Fixed selling expenses 4.00 ($348,000 total) Total cost per unit $ 33.30Explanation / Answer
Material 739500 Labour 957000 Variable o/h 182700 Fixed Cost - traceable 243600 Variable selling exp 214600 Fixed selling exp 348000 Total Cost 2685400 Avoidable Cost per unit 30.87