8. value: 3.00 points Andretti Company has a single product called a Dak. The co
ID: 2582657 • Letter: 8
Question
8.
value:
3.00 points
Andretti Company has a single product called a Dak. The company normally produces and sells 75,000 Daks each year at a selling price of $44 per unit. The company’s unit costs at this level of activity are given below:
Assume that Andretti Company has sufficient capacity to produce 101,250 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 35% above the present 75,000 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.)
Assume again that Andretti Company has sufficient capacity to produce 101,250 Daks each year. A customer in a foreign market wants to purchase 26,250 Daks. Import duties on the Daks would be $2.70 per unit, and costs for permits and licenses would be $15,750. The only selling costs that would be associated with the order would be $2.10 per unit shipping cost. Compute the per unit break-even price on this order. (Round your answers to 2 decimal places.)
The company has 800 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.)
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 30% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20%. What would be the impact on profits of closing the plant for the two-month period? (Enter losses/reductions with a minus sign. Round intermediate calculations to 2 decimal places. Round number of units calculation and final answers to nearest whole number.)
An outside manufacturer has offered to produce 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 70%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Andretti Company has a single product called a Dak. The company normally produces and sells 75,000 Daks each year at a selling price of $44 per unit. The company’s unit costs at this level of activity are given below:
Explanation / Answer
Calculation of contribution per unit = $44-(8.5+1.8+2.7+10) = $21 per unit
Extra sales = 75000*.35 =26250
Additional contribution recieved = 26250*21 = $551250
Less additional fixed asset = ($120,000)
Incremental net operating income = $431,250
1-B) The answer is yes
2)Contribution by accepting this order = 44-(23-2.1-2.7) = $16.2
Additional fixed costs =$15,750
Break even point of this order = $15,750/$16.2 = 972.22 items
3)The relevant cost for this variable sellng costs.i.e 2.70 all other variable costs become sunk costs and fixed costs are always irrelevant.800*2.7 =$2160 this costs can be avoided.
4)Calculation of BEP
total fixed costs =($450000+$337500) =$787500
Contribution per unit = $21
BEP =37500 i.e 50% of normal level
so factory should not operate at 25% of normal level.
Net operating income @25% capacity = 75000*0.25*$21 - $787500 = negative 393750 this is per annum
per two months will be -65625(assuming that sales and fixed costs are made /incurred evenly through out the year)
If the plant is closed the fixed costs will be 450000*0.3 + 337500*0.8 =$405000(per annum) for two months will be 67500 nothing but negative net operating income of 67500 for two months.
By shutting down the plant for two months,the profit will decrease by $ 1875
5)
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