ch.10 Warm-up Exercis 0 | cationcom/hm.tpx ezto.mhedu Andretti Company has a sin
ID: 2576341 • Letter: C
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ch.10 Warm-up Exercis 0 | cationcom/hm.tpx ezto.mhedu Andretti Company has a single product called a Dak. The company normally produces and sells 78,000 Daks each year at a selling price of $42 per unit. The company's unit costs at this level of activity are given below: $ 7.50 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses 11.00 2.00 7.00 (5546,000 total) 4.70 4.50 ($351,000 total) Total cost per unit 37.60 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 101,400 Daks each year without any increase in fixed manufacturing overhead costs The company could increase its sales by 30% above the present 78,000 units each year if it were willing to increase the fixed selling expenses by $140,000. Calculate the incremental net operating income. (Round all dollar amounts to 2 decimal places.) Increased sales in units Contribution margin per unit Less added fixed selling expense incremental net operating income s0.00 1-b. Would the increased fixed seling expenses be justified? 2. Assume again that Andreti Company has sufficient capacity to produce 101.400 Daks each year. A customer in a foreign market wants to purchaae 23.400 Daks·mport duties on te Das would be s2 70 per unit, and costs for permits and licenses would be $14.040 The only selling coats that wouild be associated with the order would be $2 40 per unit shipping cost. Compute the per unit break-even price on this arder (Round your answers to 2 decimal places)Explanation / Answer
1-a
Before Increasing in selling expense
Variable cost per unit
$
Direct Material
7.5
Direct Labor
11
Variable OH
2.9
Varaible S&A
4.7
Total
26.1
selling price
42
variable cost per unit
-26.1
Contribution per unit
15.9
Total contribution
(78000*15.9)
1240200
Fixed MOH
-546000
Fixed selling expenses
-351000
Net income
343200
After incresing in selling expense
Variable cost per unit
$
Direct Material
7.5
Direct Labor
11
Variable OH
2.9
Varaible S&A
4.7
Total
26.1
selling price
42
variable cost per unit
-26.1
Contribution per unit
15.9
Total contribution
(78000+30%)*15.9)
1612260
Fixed MOH
-546000
Fixed sellinge expenses (351000+140000)
-491000
Net income
575260
1-b
It should increase fixed selling expense, because it increases net income by $232060
2
Variable cost per unit
Direct Material
7.5
Direct Labor
11
Variable OH
2.9
Duties
2.7
Varaible S&A
2.4
Total
26.5
Total of 23400 units
620100
Fixed expenses
14040
Total
634140
let the sale value be x
23400*x
23400x = 634140
x = 634140/23400
$27.10
3
The relevant cost figures would be $4.70 per unit (varaible selling price per Dak)
All product costs are sunk because irregular units are produced.
Fixed selling expenses are not relevant.
4
If the plant operates at 25% of normal levels of capacity
78000units per year * 2/12
13000
13000 units *25%
3250
3250 units produced and sold
3250
Sales (3250*$42)
136500
Variable costs (3250*26.1)
-84825
Contribution Margin
51675
Fixed costs (897000*2/12)
-149500
Net Loss
-97825
shutdown
Fixed MOH (546000*2/12*0.35)
31850
Fixed selling expense (351000*2/12*0.80)
46800
Contribution Margin lost
51675
Fixed costs
Fixed MOH (546000*2/12*0.35)
31850
Fixed selling expense (351000*2/12*0.80)
46800
78650
Net disadvantange of closing the plant
-26975
1-a
Before Increasing in selling expense
Variable cost per unit
$
Direct Material
7.5
Direct Labor
11
Variable OH
2.9
Varaible S&A
4.7
Total
26.1
selling price
42
variable cost per unit
-26.1
Contribution per unit
15.9
Total contribution
(78000*15.9)
1240200
Fixed MOH
-546000
Fixed selling expenses
-351000
Net income
343200
After incresing in selling expense
Variable cost per unit
$
Direct Material
7.5
Direct Labor
11
Variable OH
2.9
Varaible S&A
4.7
Total
26.1
selling price
42
variable cost per unit
-26.1
Contribution per unit
15.9
Total contribution
(78000+30%)*15.9)
1612260
Fixed MOH
-546000
Fixed sellinge expenses (351000+140000)
-491000
Net income
575260
1-b
It should increase fixed selling expense, because it increases net income by $232060
2
Variable cost per unit
Direct Material
7.5
Direct Labor
11
Variable OH
2.9
Duties
2.7
Varaible S&A
2.4
Total
26.5
Total of 23400 units
620100
Fixed expenses
14040
Total
634140
let the sale value be x
23400*x
23400x = 634140
x = 634140/23400
$27.10
3
The relevant cost figures would be $4.70 per unit (varaible selling price per Dak)
All product costs are sunk because irregular units are produced.
Fixed selling expenses are not relevant.
4
If the plant operates at 25% of normal levels of capacity
78000units per year * 2/12
13000
13000 units *25%
3250
3250 units produced and sold
3250
Sales (3250*$42)
136500
Variable costs (3250*26.1)
-84825
Contribution Margin
51675
Fixed costs (897000*2/12)
-149500
Net Loss
-97825
shutdown
Fixed MOH (546000*2/12*0.35)
31850
Fixed selling expense (351000*2/12*0.80)
46800
Contribution Margin lost
51675
Fixed costs
Fixed MOH (546000*2/12*0.35)
31850
Fixed selling expense (351000*2/12*0.80)
46800
78650
Net disadvantange of closing the plant
-26975
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