Requesting assistant with #\'s 2 & 3. Andretti Company has a single product call
ID: 2533458 • Letter: R
Question
Requesting assistant with #'s 2 & 3.
Andretti Company has a single product called a Dak. The company normally produces and sells 60,000 Daks each year at a selling price of $32 per unit. The company’s unit costs at this level of activity are given below:
Direct materials
$
10.00
Direct labor
4.50
Variable manufacturing overhead
2.30
Fixed manufacturing overhead
5.00
($300,000 total)
Variable selling expenses
1.20
Fixed selling expenses
3.50
($210,000 total)
Total cost per unit
$
26.50
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 90,000 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $80,000. Calculate the incremental net operating income.
Increased sales in units
15,000
Contribution margin per unit
$14
Incremental contribution margin
$210,000
Less added fixed selling expense
80,000
Incremental net operating income
$130,000
1-b. Would the increased fixed selling expenses be justified?
No
Yes
2. Assume again that Andretti Company has sufficient capacity to produce 90,000 Daks each year. A customer in a foreign market wants to purchase 20,000 Daks. Import duties on the Daks would be $1.70 per unit, and costs for permits and licenses would be $9,000. The only selling costs that would be associated with the order would be $3.20 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 unit
$0.00
3. The company has 1,000 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 unit cost figure is relevant for setting a minimum selling price? (Round your answer to 2 decimal places.)
Relevant unit cost
per unit
Direct materials
$
10.00
Direct labor
4.50
Variable manufacturing overhead
2.30
Fixed manufacturing overhead
5.00
($300,000 total)
Variable selling expenses
1.20
Fixed selling expenses
3.50
($210,000 total)
Total cost per unit
$
26.50
Explanation / Answer
Contribution margin selling price per unit 32 less Variable expenses direct materials 10 direct labor 4.5 Variable manufacturing overhead 2.3 variable selling expense 1.2 18 Contribution margin per unit 14 Req 1A increased sales in units (60000*25%) 15000 contribution margin per unit 14 incremental contribution margin 210000 less added fixed selling expense 80,000 incremental net operarting income 130,000 1-b) Yes Req 2 Break even price per unit Variable manufacturing cost per unit 16.8 (DM+DL+VOH) Shipping cost 3.2 import duties 1.7 permits &licences(9,000/20000) 0.45 Break even price per unit 22.15 answer Req 3 Relevant unit cost $1.20 per unit (only selling expense will be incurred to sell irregualr units, rest is sunk cost)
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