Andretti Company has a single product called a Dak. The company normally produce
ID: 2589530 • Letter: A
Question
Andretti Company has a single product called a Dak. The company normally produces and sells 88,000 Daks each year at a selling price of $42 per unit. The company's unit costs at this level of activity are given below $ 6.50 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses 8.00 2.40 3.00 ($264,000 total) 3.70 3.50 ($308,000 total) Total cost per unit $ 27.10 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 sufficient capacity to produce 114,400 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 30% above the present 88,000 units each year if it were willing to increase the fixed selling expenses by $120,000. 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 incomeExplanation / Answer
As per chegg's policy I am allowed to answer only the first 4 parts of a question so please don't mind and ask other questions separately.
1a. Increased sales in units = 114400-88000
= 26400
Contribution margin per unit = selling price - Variable costs
= 42-(6.5+8+2.4+3.7) = 42-20.6 = 21.4
Incremental Contribution margin = 26400*21.4 = 564960
Fixed selling costs = 120000
Incremental net operating income = 564960-120000 = 444960
1b. Yes, since it has resulted in net positive incremental income.
2. Variable manufacturing cost per unit = (6.5+8+2.4) = 16.9
Import duties per unit = 2.7
Permits and licenses = 15840
Shipping cost = 2.3
Break even price per unit = 16.9+2.7+2.3 + (15840/26400)
= 22.5
3. Relevant unit cost = variable cost = 6.5+8+2.4+3.7 = 20.6