Andretti Company has a single product called a Dak. The company normally produce
ID: 2581308 • Letter: A
Question
Andretti Company has a single product called a Dak. The company normally produces and sells 75,000 Daks each year at a selling price of $42 per unit. The company's unit costs at this level of activity are given below Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses $6.50 10.00 3.60 8.00 (S600,000 total) 1.70 4.50 (5337,500 total) Total cost per unit 34.30 A number of questions relating to the production and sale of Daks follow. Each question is independent. equired: 1-a. Assume that Andretti Company has sufficient capacity to produce 101,250 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 35% above the present 75,000 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 margin Less added fixed selling expense Incremental net operating income 1-b. Would the increased fixed selling expenses be justified? O Yes 0 2. Assume again that Andretti Company has sufficient capacity to produce 101,250 Daks each year. A customer in a foreign market wants to purchase 26,250 Daks. Import duties on the Daks would be $1.70 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 $1.80 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 unitExplanation / Answer
1-a) Increased sales in units 26250 contribution margin per unit 20.2 incremental contribution margin 530250 less added fixed selling expense 110,000 incremental net operating income 420,250 1-b) yes 2) Variable manufacturing cost per unit 20.1 import duties per unit 1.7 permits and licences 0.6 shipping cost per unit 1.8 Break even price per unit 24.2 3) Relevant unit cost 1.7 per unit 4) Contribution margin lost (75000*25%*2/12)*20.20 -63125 Fixed costs fixed manufacturing overhead cost(600000*60%*2/12) 60,000 fixed selling cost (337500*20%*2/12) 11,250 71,250 Net Disadvantage of closing the plant 8125 5) Variable manufacturing costs 20.10 Fixed manufacturing overhead cost(600000*75%)/75000 6.00 Variable selling expense (1.7*1/3) 0.57 total costs avoided 26.67