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 $62 per unit. The company’s unit costs at this level of
activity are given below:
|
|
|
|
Direct materials |
$ |
8.50 |
|
Direct labor |
|
10.00 |
|
Variable manufacturing overhead |
|
2.40 |
|
Fixed manufacturing overhead |
|
9.00 |
($729,000 total) |
Variable selling expenses |
|
2.70 |
|
Fixed selling expenses |
|
3.50 |
($283,500 total) |
Total cost per unit |
$ |
36.10 |
|
|
A number of questions relating to the production and sale of
Daks follow. Each question is independent.
Assume that Andretti Company has sufficient capacity to produce
109,350 Daks each year without any increase in fixed manufacturing
overhead costs. The company could increase its unit sales by 35%
above the present 81,000 units each year if it were willing to
increase the fixed selling expenses by $110,000. What is the
financial advantage (disadvantage) of investing an additional
$110,000 in fixed selling expenses?
Financial advantage or
disadvantage? |
|
|
Assume that Andretti Company has sufficient capacity to produce
109,350 Daks each year without any increase in fixed manufacturing
overhead costs. The company could increase its unit sales by 35%
above the present 81,000 units each year if it were willing to
increase the fixed selling expenses by $110,000. Would the
additional investment be justified? Yes or no?
Assume again that Andretti Company has sufficient capacity to
produce 109,350 Daks each year. A customer in a foreign market
wants to purchase 28,350 Daks. If Andretti accepts this order it
would have to pay import duties on the Daks of $2.70 per unit and
an additional $19,845 for permits and licenses. The only selling
costs that would be associated with the order would be $1.40 per
unit shipping cost. What is the break-even price per unit on this
order? (Round your answers to 2 decimal places.)
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|
Break-even price per unit |
|
|
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 is the
unit cost figure that is relevant for setting a minimum selling
price? (Round your answer to 2 decimal places.)
|
|
Relevant unit cos |
t |
per unit |
|
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. (Round number
of units produced to the nearest whole number. Round your
intermediate calculations and final answers to 2 decimal places.
Any losses/reductions should be indicated by a minus sign.)
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?
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|
|
|
Forgone contribution margin |
|
Total avoidable fixed costs |
|
Financial advantage (disadvantage) |
|
|
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. Should
Andretti close the plant for two months? Yes or No?
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? (Do not round intermediate calculations.
Round your answers to 2 decimal places.)