Andretti Company has a single product called a Dak. The company normally produce
ID: 2566157 • Letter: A
Question
Andretti Company has a single product called a Dak. The company normally produces and sells 87,000 Daks each year at a selling price of $42 per unit. The company's unit costs at this level of activity are given below: $ 8.50 11.00 3.30 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit 6.00 ($522,000 total) 2.70 3.50 ($304,500 total) 35.00 A number of questions relating to the production and sale of Daks follow. Each question is independent.Explanation / Answer
Direct materials 8.5 Direct labor 11 Variable manufacturing overhead 3.3 Fixed manufacturing overhead 6 ($522,000 total) Variable selling expenses 2.7 Fixed selling expenses 3.5 ($304500 total) Total cost per unit 35 Direct materials 8.5 Direct labor 11 Variable manufacturing overhead 3.3 Variable COGS 22.8 Variable selling expenses 2.7 ans 1 No. of units 87000 113100 Sales 3654000 4750200 Less: variable expenses Cost of Good sold 1983600 2578680 Selling expenses 234900 305370 Total variable expenses 2218500 2884050 Contribution margin 1435500 1866150 Less: Fixed expenses Fixed manufacturing overhead 522000 522000 Fixed selling expenses 304500 444500 304500+140000 Total fixed expenses 826500 966500 Net operating Income 609000 899650 290650 Net financial advantage is $285700 ans 1b Yes the additional investment is justified as there is increase in income by $285700 ans 2 Break even price=20880+(26100*(22.8+3.7+2.2))/26100 29.50 ans ans 3 Minimum selling price is the variable selling expenses as all manufacturing expenses have already bee incurred hence irrelevant Minimum selling price is $2.7 ans 4 If plants operates at 25% normal level that it will produce will be 87000/12*2 months*25% 3625 Contribution margin lost (42-22.8-2.7)*3625 59813 less: fixed cost that can be avoided Fixed manufacturing overhead 56550 522000/12*2*65% Fixed selling cost (304500/12*2*20%) 10150 66700 Net advantage 6888 a) contribution margin foregone 59813 b) Fixed cost avoided 66700 c) Net advantage 6888 d) Yes it should be closed ans 5 Avoidable cost Variable manufcatuirng cost 22.8 varaible expenses (2.7*1/3) 0.9 Fixed manufacturing overhead cost 1.8 (522000*30%)/87000 Avoidable cost 25.5