Question
Andretti Company has a single product called a Dak. The company normally produces and sells 87,000 Daks each year at a selling price of $58
Andretti Company has a single product called a Dak. The company normally produces and sells 87,000 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 | 2.10 | ||
Fixed manufacturing overhead | 4.00 | ($348,000 total) | |
Variable selling expenses | 3.70 | ||
Fixed selling expenses | 4.00 | ($348,000 total) | |
Total cost per unit | $ | 33.30 | |
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 104,400 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 20% above the present 87,000 units each year if it were willing to increase the fixed selling expenses by $140,000. What is the financial advantage (disadvantage) of investing an additional $140,000 in fixed selling expenses?
1-b. Would the additional investment be justified?
2. Assume again that Andretti Company has sufficient capacity to produce 104,400 Daks each year. A customer in a foreign market wants to purchase 17,400 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $3.70 per unit and an additional $10,440 for permits and licenses. The only selling costs that would be associated with the order would be $1.60 per unit shipping cost. What is the break-even price per unit on this order?
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