Andretti Company has a single product called a Dak. The companynormally produces and sells 88,000 Daks each year at a sellingprice of $48 per unit. The companyâs unit costs at this level ofactivity are given below:
Directmaterials $ 9.50 Direct labor 8.00 Variablemanufacturing overhead 3.30 Fixed manufacturingoverhead 7.00 ($616,000 total) Variable sellingexpenses 3.70 Fixed sellingexpenses 5.50 ($484,000 total) Total cost perunit $ 37.00
A numberof 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 produce118,800 Daks each year without any increase in fixed manufacturingoverhead costs. The company could increase its sales by 35% abovethe present 88,000 units each year if it were willing to increasethe fixed selling expenses by $140,000. Calculate the incrementalnet operating income
1-b. Would the increasedfixed selling expenses be justified? No Yes
2. Assume again that Andretti Company has sufficient capacity toproduce 118,800 Daks each year. A customer in a foreign marketwants to purchase 30,800 Daks. Import duties on the Daks would be$3.70 per unit, and costs for permits and licenses would be$18,480. The only selling costs that would be associated with theorder would be $2.60 per unit shipping cost. Compute the per unitbreak-even price on this order
3. The company has 700 Daks on hand that have some irregularitiesand are therefore considered to be "seconds." Due to theirregularities, it will be impossible to sell these units at thenormal price through regular distribution channels. What unit costfigure is relevant for setting a minimum selling price?(Round your answer to 2 decimal places.)
4. Due to a strike in its supplierâs plant, Andretti Company isunable to purchase more material for the production of Daks. Thestrike is expected to last for two months. Andretti Company hasenough material on hand to operate at 25% of normal levels for thetwo-month period. As an alternative, Andretti could close its plantdown entirely for the two months. If the plant were closed, fixedmanufacturing overhead costs would continue at 35% of their normallevel during the two-month period and the fixed selling expenseswould be reduced by 20%. What would be the impact on profits ofclosing the plant for the two-month period?
5. An outside manufacturer has offered to produce Daks and shipthem directly to Andrettiâs customers. If Andretti Company acceptsthis offer, the facilities that it uses to produce Daks would beidle; however, fixed manufacturing overhead costs would be reducedby 30%. Because the outside manufacturer would pay for all shippingcosts, the variable selling expenses would be only two-thirds oftheir present amount. Compute the unit cost that is relevant forcomparison to the price quoted by the outside manufacturer.
Andretti Company has a single product called a Dak. The companynormally produces and sells 88,000 Daks each year at a sellingprice of $48 per unit. The companyâs unit costs at this level ofactivity are given below: |
Directmaterials | $ | 9.50 | |
Direct labor | 8.00 | ||
Variablemanufacturing overhead | 3.30 | ||
Fixed manufacturingoverhead | 7.00 | ($616,000 total) | |
Variable sellingexpenses | 3.70 | ||
Fixed sellingexpenses | 5.50 | ($484,000 total) | |
Total cost perunit | $ | 37.00 | |
A numberof 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 produce118,800 Daks each year without any increase in fixed manufacturingoverhead costs. The company could increase its sales by 35% abovethe present 88,000 units each year if it were willing to increasethe fixed selling expenses by $140,000. Calculate the incrementalnet operating income
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