Chapter 12 Saved 3 $ 7.50 Direct materials Direct labor Variable manufacturing o
ID: 2524417 • Letter: C
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Chapter 12 Saved 3 $ 7.50 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses 4.70 Fixed selling expenses 8.00 1.80 10 points 10.00 ($890,000 total) ($400,500 total) 4.50 eBook Total cost per unit $36.50 Print 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 106,800 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 20% above the present 89,000 units each year if it were willing to increase the fixed selling expenses by $100,000. What is the financial advantage (disadvantage) of investing an additional $100,000 in fixed selling expenses? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 106,800 Daks each year. A customer in a foreign market wants to purchase 17,800 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $1.70 per unit and an additional $10,680 for permits and licenses. The only selling costs that would be associated with the order would be $1.60 per unit shipping cost. What is the break-even price per unit on this order? 3. The company has 900 Daks on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure that is relevant for setting a minimum selling price? 4. Due to a strike in its supplier's plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 35% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two-month period. a. How much total contribution margin will Andretti forgo if it closes the plant for two months? b. How much total fixed cost will the company avoid if it closes the plant for two months? C. What is the financial advantage (disadvantage) of closing the plant for the two-month period? d. Should Andretti close the plant for two months? Reference 5. An outside manufacturer has offered to produce 89,000 Daks and ship them directly to Andretti's customers. If Andretti Company accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. What is Andretti's avoidable cost per unit that it should compare to the price quoted by the outside manufacturer? Complete this question by entering your answers in the tabs below. Req 4A to 4C Req 1AReq 1B Req2 Req 3 Req 4DReq 5 Assume that Andretti Company has sufficient capacity to produce 106,800 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 20% above the present 89,000 units each year if it were willing to increase the fixed selling expenses by $100,000. What is the financial advantage (disadvantage) of investing an additional $100,000 in fixed selling expenses? Show lessExplanation / Answer
Solution 1-a: Financial Advantage : $576,400
Company Andretti has sufficient capacity to produce additional 17,800 Daks (106,800 – 89,000)
Let’s compute the contribution per unit = Sales- Direct Material- Direct Labor- Variable Manufacturing Overhead- variable Selling expenses
= $60- $7.5- $8- $1.8- $4.7
= $38
No. of additional units = 17,800
Additional contribution= 17,800 * 38= $676,400
Increase in Fixed Selling Overhead= 100,000
Net advantage= $676,400- $100,000= $576,400
Please note Since Company A is having excess capacity, there would not be any impact on fixed manufacturing overhead in total.
Solution 1-b: Yes
Solution 2: $21.2
Let’s compute the variable cost per unit of foreign order
Variable Cost= Direct Material+ Direct labor+ variable Manufacturing Overhead+ Import Duty+ Shipping cost
= $7.5+ $8+ $1.8+ $1.7+ $1.6
= $20.6
$10,680 is the Fixed Cost for Permits and Licenses.
At break-even point, Fixed Cost = Contribution
10,680= (Selling Price - $20.6)*17,800
Selling Price= $0.6 + $20.6
= $21.2
Solution 3: $4.7
The only cost relevant for these 900 Daks on hand is the variable selling overheads to be incurred at the time of sale. No expense in relation to material and labor will be spent on it. Hence relevant unit cost for these Daks is variable selling expenses i.e. $4.7
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