Question
Andretti Company has a single product called a Dak. The company normally produces and sells 83,000 Daks each year at a selling price of $58
Andretti Company has a single product called a Dak. The company normally produces and sells 83,000 Daks each year at a selling price of $58 per unit. The companys unit costs at this level of activity are given below:
Direct materials | $ | 8.50 | |
Direct labor | 11.00 | ||
Variable manufacturing overhead | 3.30 | ||
Fixed manufacturing overhead | 7.00 | ($581,000 total) | |
Variable selling expenses | 3.70 | ||
Fixed selling expenses | 4.00 | ($332,000 total) | |
Total cost per unit | $ | 36.50 | |
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 112,050 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 83,000 units each year if it were willing to increase the fixed selling expenses by $100,000. What is the financial advantage (disadvantage) of investing an additional $100,000 in fixed selling expenses?
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