Andretti Company has a single product called a Dak. The company normally produce

Question

Andretti Company has a single product called a Dak. The company normally produces and sells 89,000 Daks each year at a selling price of $62 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 Total cost per unit $8.50 8.00 3.10 10.00 ($890,000 total) 4.70 4.50($400,500 total) $38.80 A number of questions relating to the production and sale of Daks follow. Each question is independent.

Explanation / Answer

ans 1a in $ Increase in sales revenue (89000*20%*62) 1103600 Less: Additional varianble cost 432540 (8.5+8+3.1+4.7)*(89000*20%) Increase in Profit 671060 Less: Increase in fixed selling expenses -100000 Financial advantage 571060 ans ans 1b Yes it is justified ans 2 is correct ans 3 Relevant unit cost is the variable selling expenses as it needs to be incurred to sell. $4.7 is relevant ans 4 Production 89000/12*25%*2 months 3708 Contribution margin forgone 139792 ans 4a 3708*(62-8.5-8-3.1-4.7) 4b Fixed cost avoided Fixed manufacturing overhead 890000/12*2 months*65% 96417 Fixed selling expenses 400500/12*2*20% 13350 Total fixed cost avoided 109767 ans 4b 4c Contribution margin forgone 139792 Less: Fixed cost avoided Fixed manufacturing overhead 96417 Fixed selling expenses 13350 109767 Financial disadvantage ans 4c -30025 ans 4d No he should not close the plant Ans 5 Avoidable cost per unit Fixed manufacturing overhead (10*30%) 3 Variable selling expenses 4.7*1/3 1.57 Avoidable cost per unit $4.57

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