Andretti Company has a single product called a Dak. The company normally produces and sells 85,000 Daks each year at a selling price of $54 per unit. The companys unit costs at this level of activity are given below: Direct materials $ 7.50 Direct labor 12.00 Variable manufacturing overhead 2.40 Fixed manufacturing overhead 7.00 ($595,000 total) Variable selling expenses 4.70 Fixed selling expenses 3.00 ($255,000 total) Total cost per unit $ 36.60 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 114,750 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 85,000 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? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 114,750 Daks each year. A customer in a foreign market wants to purchase 29,750 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $3.70 per unit and an additional $23,800 for permits and licenses. The only selling costs that would be associated with the order would be $2.30 per unit shipping cost. What is the break-even price per unit on this order? 3. 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? 4. Due to a strike in its suppliers 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? 5. An outside manufacturer has offered to produce 85,000 Daks and ship them directly to Andrettis 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 Andrettis avoidable cost per unit that it should compare to the price quoted by the outside manufacturer?

12. The Walton Toy Company manufactures a line of dolls and a sewing kit. Demand for the companys products is increasing, and management requests assistance from you in determining an economical sales and production mix for the coming year. The company has provided the following data: Product Demand Next year (units) Selling Price per Unit Direct Materials Direct Labor Debbie 59,000 $ 30.00 $ 5.20 $ 2.10 Trish 51,000 $ 7.00 $ 2.00 $ 0.70 Sarah 44,000 $ 42.00 $ 7.79 $ 4.20 Mike 54,500 $ 12.00 $ 2.90 $ 2.80 Sewing kit 334,000 $ 8.90 $ 4.10 $ 0.35 The following additional information is available: The companys plant has a capacity of 76,800 direct labor-hours per year on a single-shift basis. The companys present employees and equipment can produce all five products. The direct labor rate of $7 per hour is expected to remain unchanged during the coming year. Fixed manufacturing costs total $610,000 per year. Variable overhead costs are $4 per direct labor-hour. All of the companys nonmanufacturing costs are fixed. The companys finished goods inventory is negligible and can be ignored. Required: 1. How many direct labor hours are used to manufacture one unit of each of the companys five products? 2. How much variable overhead cost is incurred to manufacture one unit of each of the companys five products? 3. What is the contribution margin per direct labor-hour for each of the companys five products? 4. Assuming that direct labor-hours is the companys constraining resource, what is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource? 5. Assuming that the company has made optimal use of its 76,800 direct labor-hours, what is the highest direct labor rate per hour that Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor time)?

13. Come-Clean Corporation produces a variety of cleaning compounds and solutions for both industrial and household use. While most of its products are processed independently, a few are related, such as the companys Grit 337 and its Sparkle silver polish. Grit 337 is a coarse cleaning powder with many industrial uses. It costs $1.60 a pound to make, and it has a selling price of $7.40 a pound. A small portion of the annual production of Grit 337 is retained in the factory for further processing. It is combined with several other ingredients to form a paste that is marketed as Sparkle silver polish. The silver polish sells for $5.00 per jar. This further processing requires one-fourth pound of Grit 337 per jar of silver polish. The additional direct variable costs involved in the processing of a jar of silver polish are: Other ingredients $ 0.50 Direct labor 1.44 Total direct cost $ 1.94 Overhead costs associated with processing the silver polish are: Variable manufacturing overhead cost 25 % of direct labor cost Fixed manufacturing overhead cost (per month) Production supervisor $ 3,400 Depreciation of mixing equipment $ 1,400 The production supervisor has no duties other than to oversee production of the silver polish. The mixing equipment is special-purpose equipment acquired specifically to produce the silver polish. It can produce up to 1,000 jars of polish per month. Its resale value is negligible and it does not wear out through use. Advertising costs for the silver polish total $2,600 per month. Variable selling costs associated with the silver polish are 5% of sales. Due to a recent decline in the demand for silver polish, the company is wondering whether its continued production is advisable. The sales manager feels that it would be more profitable to sell all of the Grit 337 as a cleaning powder. Required: 1. How much incremental revenue does the company earn per jar of polish by further processing Grit 337 rather than selling it as a cleaning powder? (Round your answer to 2 decimal places.) 2. How much incremental contribution margin does the company earn per jar of polish by further processing Grit 337 rather than selling it as a cleaning powder? (Round your intermediate calculations and final answer to 2 decimal places.) 3. How many jars of silver polish must be sold each month to exactly offset the avoidable fixed costs incurred to produce and sell the polish? (Round your intermediate calculations to 2 decimal places.) 4. If the company sells 9,000 jars of polish, what is the financial advantage (disadvantage) of choosing to further process Grit 337 rather than selling is as a cleaning powder? (Enter any "disadvantages" as a negative value. Round your intermediate calculations to 2 decimal places.) 5. If the company sells 11,500 jars of polish, what is the financial advantage (disadvantage) of choosing to further process Grit 337 rather than selling is as a cleaning powder? (Enter any "disadvantages" as a negative value. Round your intermediate calculations to 2 decimal places.)