3. Andretti Company has a single product called a Dak. The company normally prod

Question

3. Andretti Company has a single product called a Dak. The company normally produces and sells 81,000 Daks each year at a selling price of $46 per unit. The company’s unit costs at this level of activity are given below:

A number of questions relating to the production and sale of Daks follow. Each question is independent.

Required:

2. Assume again that Andretti Company has sufficient capacity to produce 101,250 Daks each year. A customer in a foreign market wants to purchase 20,250 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $4.70 per unit and an additional $10,125 for permits and licenses. The only selling costs that would be associated with the order would be $2.10 per unit shipping cost. What is the break-even price per unit on this order?

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?

5. An outside manufacturer has offered to produce 81,000 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?

Direct materials $ 7.50 Direct labor 10.00 Variable manufacturing overhead 2.60 Fixed manufacturing overhead 4.00 ($324,000 total) Variable selling expenses 1.70 Fixed selling expenses 4.50 ($364,500 total) Total cost per unit $ 30.30 Ch 12 Saved Help 3 Andretti Company has a single product called a Dak. The company normally produces and sells 81,000 Daks each year at a selling price of $46 per unit. The company's unit costs at this level of activity are given below: 14.28 points Direct materials Direct labor Variable manufacturing overhead Pixed manufacturing overhead Variable selling expenses Pixed selling expenses Total cost per unit $7.50 10.00 2.60 4.00 ($324,000 total) 1.70 4.50 ($364, 500 total) eBook $30.30 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 101,250 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 25% above the present 81,000 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 101,250 Daks each year. A customer in a foreign market wants to purchase 20,250 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $4.70 per unit and an additional $10,125 for permits and licenses. The only selling costs that would be associated with the order would be $2.10 per unit shipping cost. What is the break-even price per unit on this order? 3. The company has 600 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? References 5. An outside manufacturer has offered to produce 81,000 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

Explanation / Answer

QUESTION 5

FIXED MANF OH X 70% X 324000

226800/81000

$2.80 PER UNIT

AVOIDED MANF COST 30% X 324000

97200/81000

$1.20

NEW V COST

DM

7.50

DL

10

VOH

2.60

V SELLING

2/3 X 1.70

1.13

MNF COST

2.80

24.03

AVOIDABLE COST PER UNIT

.57 ( VAR SLLING COST) +1.20 ( AVOIDED MANF COST)

TOTAL = $ 1.77

PRICE QUOTED BY OUTSIDE MANFACTURER SHOULS BE

= OR < 24.03

QUESTION 4

$

$

$

25% NORMAL LEVELS

UNITS 25% 81000

20250

TOTAL VC

21.80

SP

46

C PER UNIT

24.20

FIXED MFG COST

324000 X35%

=113400

FIXED SELLING

364500 X 80%

=291600

TOTAL

405000

CONTRIBUTION @ 20250X 24.20

= 490050

CONTRIBUTION PREVIOUS

81000X 24.20

= 1960.200

1470150

PROFIT

490050 LESS 405000

85500

688500

-405000

283500

DISADVANTAGE

YES, STRIKE IS NOT AVOIDABLE YET THIS IS TEMPORARY

QSN 2

SP

46

VARIABLE COST

DM

7.50

DL

10

VOH

2.60

VS COST

1.70

IMPORT DUTY

4.70

PORT LICENCES

.50

SELLING COST

2.10

-29.10

CONTRIBUTION PER UNIT

16.9

FIXED COSTS

324000

364500

688500

BEP

FIXED COSTS/CONTRIBUTION PER UNIT

688500/16.9

=

40740 UNITS

QUESTION 5

FIXED MANF OH X 70% X 324000

226800/81000

$2.80 PER UNIT

AVOIDED MANF COST 30% X 324000

97200/81000

$1.20

NEW V COST

DM

7.50

DL

10

VOH

2.60

V SELLING

2/3 X 1.70

1.13

MNF COST

2.80

24.03

AVOIDABLE COST PER UNIT

.57 ( VAR SLLING COST) +1.20 ( AVOIDED MANF COST)

TOTAL = $ 1.77

PRICE QUOTED BY OUTSIDE MANFACTURER SHOULS BE

= OR < 24.03

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.