Andretti Company has a single product called a Dak. The companynormally produces and sells 89,000 Daks each year at a sellingprice of $46 per unit. The companyâs unit costs at this level ofactivity are given below:
Directmaterials $ 8.50 Direct labor 8.00 Variablemanufacturing overhead 2.00 Fixed manufacturingoverhead 8.00 ($712,000 total) Variable sellingexpenses 3.70 Fixed sellingexpenses 4.50 ($400,500 total) Total cost perunit $ 34.70
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 produce115,700 Daks each year without any increase in fixed manufacturingoverhead costs. The company could increase its sales by 30% abovethe present 89,000 units each year if it were willing to increasethe fixed selling expenses by $110,000. Calculate the incrementalnet operating income. (Round all dollar amounts to 2decimal places.)
1-b. Would theincreased fixed selling expenses be justified? No Yes
2. Assume again that Andretti Company has sufficient capacity toproduce 115,700 Daks each year. A customer in a foreign marketwants to purchase 26,700 Daks. Import duties on the Daks would be$1.70 per unit, and costs for permits and licenses would be$16,020. The only selling costs that would be associated with theorder would be $2.40 per unit shipping cost. Compute the per unitbreak-even price on this order. (Round your answers to 2decimal places.)
3. The company has 400 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 40% 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? (Enterlosses/reductions with a minus sign. Round all calculations(intermediate and final) to whole numbers. Round unit calculationsto whole numbers.)
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.(Do not round intermediate calculations.Round your answer to 2 decimal places.)
Andretti Company has a single product called a Dak. The companynormally produces and sells 89,000 Daks each year at a sellingprice of $46 per unit. The companyâs unit costs at this level ofactivity are given below: |
| Directmaterials | $ | 8.50 | |
| Direct labor | 8.00 | ||
| Variablemanufacturing overhead | 2.00 | ||
| Fixed manufacturingoverhead | 8.00 | ($712,000 total) | |
| Variable sellingexpenses | 3.70 | ||
| Fixed sellingexpenses | 4.50 | ($400,500 total) | |
| Total cost perunit | $ | 34.70 | |
| 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 produce115,700 Daks each year without any increase in fixed manufacturingoverhead costs. The company could increase its sales by 30% abovethe present 89,000 units each year if it were willing to increasethe fixed selling expenses by $110,000. Calculate the incrementalnet operating income. (Round all dollar amounts to 2decimal places.) |
| 1-b. | Would theincreased fixed selling expenses be justified? | ||||
|
| 2. | Assume again that Andretti Company has sufficient capacity toproduce 115,700 Daks each year. A customer in a foreign marketwants to purchase 26,700 Daks. Import duties on the Daks would be$1.70 per unit, and costs for permits and licenses would be$16,020. The only selling costs that would be associated with theorder would be $2.40 per unit shipping cost. Compute the per unitbreak-even price on this order. (Round your answers to 2decimal places.) |
| 3. | The company has 400 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 40% 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? (Enterlosses/reductions with a minus sign. Round all calculations(intermediate and final) to whole numbers. Round unit calculationsto whole numbers.) |
| 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.(Do not round intermediate calculations.Round your answer to 2 decimal places.) |
Related questions
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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| Andretti Company has a single product called a Dak. The companynormally produces and sells 88,000 Daks each year at a sellingprice of $42 per unit. The companyâs unit costs at this level ofactivity are given below:
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Andretti Company has a single product called a Dak. The companynormally produces and sells 88,000 Daks each year at a sellingprice of $58 per unit. The companyâs unit costs at this level ofactivity are given below:
| Direct materials | $ | 9.50 | |
| Direct labor | 9.00 | ||
| Variable manufacturingoverhead | 3.10 | ||
| Fixed manufacturingoverhead | 4.00 | ($352,000 total) | |
| Variable selling expenses | 3.70 | ||
| Fixed selling expenses | 3.50 | ($308,000 total) | |
| Total cost per unit | $ | 32.80 | |
A number of questions relating to the production and sale ofDaks follow. Each question is independent.
Required:
1-a. Assume that Andretti Company has sufficient capacity toproduce 118,800 Daks each year without any increase in fixedmanufacturing overhead costs. The company could increase its unitsales by 35% above the present 88,000 units each year if it werewilling to increase the fixed selling expenses by $110,000. What isthe financial advantage (disadvantage) of investing an additional$110,000 in fixed selling expenses?
1-b. Would the additional investment be justified?
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. If Andretti accepts this order itwould have to pay import duties on the Daks of $2.70 per unit andan additional $24,640 for permits and licenses. The only sellingcosts that would be associated with the order would be $2.00 perunit shipping cost. What is the break-even price per unit on thisorder?
3. The company has 700 Daks on hand that have someirregularities and are therefore considered to be "seconds." Due tothe irregularities, it will be impossible to sell these units atthe normal price through regular distribution channels. What is theunit cost figure that is relevant for setting a minimum sellingprice?
