Andretti Company has a single product called a Dak. The Daks each year at a sell

Question

Andretti Company has a single product called a Dak. The Daks each year at a selling price of $48 per unit. The company's unit company normally produces and sells 84,000 costs at this level of activity are given S 8.50 9.00 3.80 9.00 (S756,000 total) 1.70 4.50 ($378,000 total) overhead $ 36.50 A number of questions relating to the production and sale of Daks follow. Each question is independent. dreti Company has sufficent any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the present 84,000 units each year if it were willing to increase the fixed selling expenses by $140,000 places.) Calculate the incremental net operating income. (Round all dollar amounts to 2 decimal sales in units margin $ 0.00 be

Explanation / Answer

1-a) Present sales volume: 84000 units

Estimated increase in sales volume: 25%

New sales volume= 84000*125%= 105000 units

Computation of New sales value:

Direct materials : 8.50

Direct labour : 9.00

Variable manufacturing overhead : 3.80

Fixed manufacturing overhead : 9.00

Variable selling expenses : 1.70

Fixed selling expenses : 4.93

Total cost per unit : $ 36.93

Increased sales in units = 84000*125%= 105000

Contribution margin per unit= saliing per unit-variable cost per unit=48-3.80=44.20

Incremental net operating income:

Direct materials =105000*8.5 = 892500

Direct labour =105000*9 = 945000

Variable manufacturing overhead =105000*3.80 = 399000

Fixed manufacturing overhead = 756000

Variable selling expenses =105000*1.70 =178500

Fixed selling expenses =378000+140000 =518000

Total Cost for 105000 units: $ 3689000

Incremental net operating income= (105000*48)-3689000= $ 1,351,000.

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