Andretti Company has a single product called a Dak. The company normally produce
ID: 2518345 • 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 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses 5 9.50 8.00 3.80 4.00 (S324,000 total) 3.70 5.50 (5445,500 total) Total cost per unit 5 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 113,400 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 40% above the present 81,000 units each year if it were willing to increase the fixed selling expenses by 110,000 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 0.00 1-b. Would the increased fixed selling expenses be justified? O No Yes 2. Assume again that Andretti Company has sufficient capacity to produce 113,400 Daks each year. A customer in a foreign market wants to purchase 32,400 Daks. Import duties on the Daks would be 51.70 per unit, and costs for permits and licenses would be $18,200. The only selling costs that would be associated with the order would be 52.70 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 hipping cost per unit Break-even price per unit 0.00 3. The company has 700 Daks on hand that have some irregularities and are therefore considered to be irregularities, it will be impossible to sell these units at the normal price through "seconds." Due to the regular distribution channels. What unit cost figure is relevant for setting a minimum selling price? Round your answer to 2 decimal places.) elevant unit cost per unitExplanation / Answer
Contribution margin selling price per unit 42 less Variable expenses direct materials 9.5 direct labor 8 Variable manufacturing overhead 3.8 variable selling expense 3.7 25 Contribution margin per unit 17 Req 1A increased sales in units (81000*40%) 32400 contribution margin per unit 17 incremental contribution margin 550800 less added fixed selling expense 110,000 incremental net operarting income 440,800 1-b) Yes Req 2 Break even price per unit Variable manufacturing cost per unit 21.3 Shipping cost 2.7 import duties 1.7 permits &licences(16,200/32400) 0.5 Break even price per unit 26.2 answer Req 3 Relevant unit cost $3.70 per unit 4) Contribution margin lost (3375*17) -57375 fixed costs fixed manufacturing overhead cost (324000*2/12)*65% 35100 fixed selling cost (445,500*2/12)*20% 14850 49950 net disavantage of closing the plant -7425 81000*2/12*25%= 3375 units 5) Variable manfuacturing costs 21.3 fixed manufacturing overhead cost (4*70%)= 2.8 variable selling expense 3.7*2/3 2.47 total costs avoided 26.57