Check my work Andretti Company has a single product called a Dak. The company no
ID: 2554587 • Letter: C
Question
Check my work Andretti Company has a single product called a Dak. The company normally produces and sells 83,000 Daks each year at a selling price of $56 per unit. The company's unit costs at this level of activity are given below: Direct materials Direct labor Variable nanufacturing overhead Fixed manufacturing overhead Variable selling expenses Pixed selling expenses Total cost per unit $ 7.50 10.00 2.00 9.00 ($747,000 total) eBook 1.70 300 ($249,000 total) Print 33.20 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 suficient capacity to produce 112.050 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 83,000 units each year it were willing to increase the fixed selling expenses by $140,000 What is the financial edvantage (disadvantage) of investingExplanation / Answer
1(b) : yes the additional investment is justified, because due to additional investment net profit will increase by $870940
3. Minimum selling price : $1.7 is the variable selling expenses as all manufacturing expenses have already been incurred hence irrelevant.
a. Contribution margin of $2888400 will be forgo if plant will be shut down.
b. If, plant will close for 2 month the fixed cost will be saved by company ($996000-$460650)*2 = $1070700
1. Computation of Net Financial Advantage at increased capacity cost/Unit Existing Capacity Increased Capacity No. of units 83000 112050 Sales (107500*50) $56 $4,648,000 $6,274,800 Less: variable expenses Direct Material $8 $622,500 $840,375 Direct Labour $10 $830,000 $1,120,500 Variable Manufacturing Overhead $2 $166,000 $224,100 Variable selling expense $2 $141,100 $190,485 Contribution Margin $35 $2,888,400 $3,899,340 Less: Fixed expenses Fixed manufacturing overhead $747,000 $747,000 Fixed selling expenses $249,000 $389,000 Net operating Income $1,892,400 $2,763,340 Net financial advantage $870,9401(b) : yes the additional investment is justified, because due to additional investment net profit will increase by $870940
2. Computation of Breakeven price Additional Cost due to acceptance of Order Import Duties (29050*$3.70) $107,485 Permit & License $23,240 Selling Cost (29500*$1.70) $50,150 Variable cost of Goods Sold (29500*19.50) $575,250 Total Cost for 29500 Unit $756,125 No. of Unit $29,500 Breakeven Price $263. Minimum selling price : $1.7 is the variable selling expenses as all manufacturing expenses have already been incurred hence irrelevant.
4. Computation of Income if, Operate at 25% of Normal level cost/Unit Existing Capacity Operate at 25% of Normal Level No. of units 83000 20750 Sales $56.00 $4,648,000 $1,162,000 Less: variable expenses Direct Material $7.50 $622,500 $155,625 Direct Labour $10.00 $830,000 $207,500 Variable Manufacturing Overhead $2.00 $166,000 $41,500 Variable selling expense $1.70 $141,100 $35,275 Contribution Margin $34.80 $2,888,400 $722,100 Less: Fixed expenses Fixed manufacturing overhead $747,000 $747,000 Fixed selling expenses $249,000 $389,000 Net operating Income $1,892,400 -$413,900 Revised Fixed cost if, close it Plant down Detail Existing Revised Fixed Manufacuring Overhead $747,000 $261,450 Fixed Selling Expense $249,000 $199,200 Total Fixed Cost $996,000 $460,650a. Contribution margin of $2888400 will be forgo if plant will be shut down.
b. If, plant will close for 2 month the fixed cost will be saved by company ($996000-$460650)*2 = $1070700
c. Financial advantage of opertaing the plant for 2 month because if it will operate the plat at 25% capacity net loss will be $ 413900 permonth . However if it will cose down the plant the net loss of fixed cost will be $460650.