Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Andretti Company has a single product called a Dak. The company normally produces and sells 8 1 , 0 0 0 Daks each year at

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 $60 per unit. The company's unit costs at this level of activity are given below:
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 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 $120,000. What is the financial advantage (disadvantage) of investing an additional
$120,000 in fixed selling expenses?
1-b. Would the additional investment be justified?
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 $1.70 per unit and an
additional $22,680 for permits and licenses. The only selling costs that would be associated with the order would be $2.50 per unit
shipping cost. What is the break-even price per unit on this order?
The company has 500 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?
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 40% 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 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?
d. Should Andretti close the plant for two months?
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?
Complete this question by entering your answers in the tabs below.
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 $120,000. What is the financial advantage (disadvantage) of investing
an additional $120,000 in fixed selling expenses?
Show less
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

A One Year Accounting Course

Authors: Trevor Gambling

21st Edition

0080130275, 9780080130279

More Books

Students also viewed these Accounting questions