Problem 12-18 Relevant Cost Analysis in a Variety of Situations [LO12-2, L012-3,
ID: 2529408 • Letter: P
Question
Problem 12-18 Relevant Cost Analysis in a Variety of Situations [LO12-2, L012-3, L012-4] Andretti Company has a single product called a Dak. The company normally produces and sells 88,000 Daks each year at a selling price of $56 per unit. The company's unit costs at this level of activity are given below 16 Skipped Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit $7.50 11.00 2.80 eBook 5.00 ($440,e80 total) 3.78 Print 2.5e ($220,9e0 total) 32.50 References 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 123,200 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase is unt sales by 40% abo ene present BB00Duits aaen yearn t were willing to increase the fixed selling expenses by $110,000. What is the financial advantage (disadvantage) of investing an additional $110,000 in fixed selling expenses? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 123,200 Daks each year. A customer in a foreign market wants to purchase 35,200 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $3.70 per unit and an additional $28,160 for permits and licenses. The only selling costs that would be associated with the order would be $2.20 per unit shipping cost. What is the break-even price per unit on this order? 3. The company has 900 Daks on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost fiaure that is relevant for settina a minimum sellina price? Mc Graw at Benatar- Sha.. .mp3Explanation / Answer
Answer
Break-even price per unit:
Particulars Amount Variable manufacturing cost per unit(7.5+11+2.80) $21.30 Import duties per unit $3.70 Permits and licenses(28160/35200) $0.80 Shipping cost per unit $2.20 Break-even price per unit $28