Problem 12-18 Relevant Cost Analysis in a Variety of Situations [L012-2, LO12-3,
ID: 2570804 • Letter: P
Question
Problem 12-18 Relevant Cost Analysis in a Variety of Situations [L012-2, LO12-3, L012-4] 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 $46 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 $ 7.50 10.00 2.50 7.00 ($609,000 total) 3.70 5-50 ($478,500 total) $36.20 A number of questions relating to the production and sale of Daks follow. Each question is independent.Explanation / Answer
1A. Statement of contribution per unit
Statement of Net Advantage/Disadvantage
2.
3. Relevant unit cost
= Variable Selling expenses
= $3.70
4A. Unit production in these twor-month period = 87000 x 2/12 x 25% = 3625 units
Contribution margin foregone if it closes the plant for two months = 3625 units x $22.30 = $80837.50
4B. Total fixed cost avoided if it closes the plant for two months = ($609000 x 65% x 2/12) + ($478500 x 20% x 2/12) = $81925
4C. Financial advantage (disadvantage) of closing the plant = $81925 - $80837.50 = $1087.50
5.
Selling price $46.00 Variable expenses: Direct materials 7.50 Direct labor 10.00 Variable manufacturing overhead 2.50 Variable selling expenses 3.70 Total variable expenses 23.7 Contribution per unit $22.30