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PROBLEM 1 3 - 1 9 Relevant Cost Anolysis in a Variety of Situations LO 1 3 - 2 , L 0 1 3 -

PROBLEM 13-19 Relevant Cost Anolysis in a Variety of Situations LO 13-2, L013-3, LO13-4Andretti 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 netivity are given below:Direct materials .Direct labor$10.00Variable manufacturing overhead4,50Fixed manufacturing overhead2.30Variable selling expenses5.00($300,000 total)Fixed selling expenses1.20Total cost per unit.3,50$210,000 total)$26.50A number of questions relating to the production and sale of Daks follow. Each question is independent.Required:-Assume 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 unit sales by 25% above the present 60,000 units each year if it increased fixed selling expenses by $80,000. What is the financial advantage (disadvantage) of investing an additional $80,000 in fixed selling expenses? Would the additional investment be justified?2. Assume Andretti Company has sufficient capacity to produce 90,000 Daks each year. A customer in a foreign market wants to purchase 20.000 Daks. If Andretti accepts this order, it would pay import duties on the Daks of $1.70 per unit and an additional $9,000 for permits and licenses. The only selling costs associated with the order would be $3.20 per unit shipping3.cost. What is the break-even price per unit on this order?The company has 1.000 Daks on hand with some irregularities that make it impossible to sell them at the normal price through regular distribution channels. What unit cost figure is relevant for setting a minimum selling price to liquidate these units? Explain.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 30% of normal levels for the tio-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 60% 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 Andrei forgo it it closes the plant for two months?6. 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?Should Andretti close the plant for two months?

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