Question

Requesting assistant with #'s 2 & 3.

Andretti Company has a single product called a Dak. The company normally produces and sells 60,000 Daks each year at a selling price of $32 per unit. The company’s unit costs at this level of activity are given below:

Direct materials	$	10.00
Direct labor		4.50
Variable manufacturing overhead		2.30
Fixed manufacturing overhead		5.00	($300,000 total)
Variable selling expenses		1.20
Fixed selling expenses		3.50	($210,000 total)
Total cost per unit	$	26.50

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 90,000 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $80,000. Calculate the incremental net operating income.

	Increased sales in units         15,000         Contribution margin per unit         $14         Incremental contribution margin         $210,000         Less added fixed selling expense         80,000         Incremental net operating income         $130,000

1-b. Would the increased fixed selling expenses be justified?

	No
	Yes

2. Assume again that Andretti Company has sufficient capacity to produce 90,000 Daks each year. A customer in a foreign market wants to purchase 20,000 Daks. Import duties on the Daks would be $1.70 per unit, and costs for permits and licenses would be $9,000. The only selling costs that would be associated with the order would be $3.20 per unit shipping cost. Compute the per unit break-even price on this order. (Round your answers to 2 decimal places.)

	Variable manufacturing cost per unit         Import duties per unit         Permits and licenses         Shipping cost per unit         Break-even price per unit         $0.00

3. The company has 1,000 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.)

	Relevant unit cost         per unit

Answer 1

	Contribution margin
	selling price per unit				32
	less Variable expenses
	direct materials			10
	direct labor			4.5
	Variable manufacturing overhead			2.3
	variable selling expense			1.2	18
	Contribution margin per unit				14
Req 1A	increased sales in units			(60000*25%)		15000
	contribution margin per unit					14
	incremental contribution margin					210000
	less added fixed selling expense					80,000
	incremental net operarting income					130,000
1-b)	Yes
Req 2	Break even price per unit
	Variable manufacturing cost per unit			16.8		(DM+DL+VOH)
	Shipping cost			3.2
	import duties			1.7
	permits &licences(9,000/20000)			0.45
	Break even price per unit			22.15	answer
Req 3	Relevant unit cost		$1.20	per unit
	(only selling expense will be incurred to sell irregualr units, rest is sunk cost)