Andretti Company has a single product called a Dak. The company normally produce
ID: 2533331 • Letter: A
Question
Andretti Company has a single product called a Dak. The company normally produces and sells 90,OD0 Daks each year at a selling price of S42 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 $ 9.50 8.00 2.60 3.00 ($270,000 total) 1.70 5.50 (S495,000 total) Total cost per unit 30.30 A number of questions relating to the production and sale of Daks follow. Each question is independent. Required: Assume that Andretti Company has sufficient capacity to produce 112,500 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the present 90,000 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 marg in Less added fixed selling expense Incremental net operating income 0.00 Assume again that Andretti Company has sufficient capacity to produce 112,500 Daks each year. A customer in a foreign market wants to purchase 22,500 Daks. Import duties on the Daks would be $2.70 per unit, and costs for permits and licenses would be $15,750. The only selling costs that would be associated with the order would be $2.00 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 Shipping cost per unit Break-even price per unit 0.00Explanation / Answer
Answer 3. Variable Selling Exp. = $1.70 per unit is only relevant cost. Since the irregular units have already been produced, all production costs (including the variable production costs) are sunk. The fixed selling expenses are not relevant since they will not change regardless of whether or not the irregular units are sold. Answer 4. Continuing Production Daks Produced in case of Strike = (90,000 Units X 2/12) X 25% = 3,750 Units Contribution Margin Lost - 3,750 Units X $20.20 75,750 Fixed Cost Fixed Manufacturing Cost 27,000 Fixed Selling Cost 16,533 43,533 Net Disadvantage of Closing the plant 32,217 Shutting down the plant would cause a decrease in net income of $32,217 Therefore, the plant should continue to produce at the 25% production level. Answer 5. Direct Material 9.50 Direct Labor 8.00 Variable MOH 2.60 Variable Selling Exp. - $1.70 X 1/3 0.57 Fixed MOH - ($270,000 X 75%) / 90,000 Units 2.25 Total Cost Avoided 22.92