Andretti Company has a single product called a Dak. The company normally produce
ID: 2591866 • Letter: A
Question
Andretti Company has a single product called a Dak. The company normally produces and sells 85,000 Daks each year at a selling price of $44 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 3.80 6.00 ($510,000 total) 1.70 3.50 ($297,500 total) $31.50 A number of questions relating to the production and sale of Daks follow. Each question is independent.Explanation / Answer
Avoidable cost per unit = $26.17....(two decimal places).
the following is the calculation of avoidable cost per unit:
fixed manufacturing costs would be reduced by 30%, which means that only 30%of fixed cost is to be considered for computing avoidable cost per unit
=> relevant fixed cost = $510,000 *30% =>$153,000.
per unit fixed cost = $153,000 / 85,000 =>$1.80.
Direct materials $7.50 Direct labour $9.00 Variable manufacturing overhead $3.80 fixed manufacturing overhead (see note) $1.80 variable selling expense (1.70 * 1/3) (2/3rds is unavoidable) $0.56666 fixed selling expenses $3.50 Avoidable cost per unit $26.17