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Managerial accounting ( SUM ) - problem 2 ( for 2 0 credits ) Andretti Company has a single product called Daks. The company normally

Managerial accounting (SUM)- problem 2(for 20 credits)
Andretti Company has a single product called Daks. The company normally produces and sells
72,000 Daks each year at a selling price of $28.00 per unit. The company's unit costs at this
level of activity are given below:
Direct material
Direct labour .
Variable manufacturing
overhead.
Fixed manufacturing overhead.
Variable selling expense
Fixed selling expense
Total cost per unit
$12.00
2.50
1.80
3.20
1.20
3.00
$23.70
A number of questions relating to the production and sale of Daks follow. Each question is
independent.
Required:
Assume that 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 sales by 20% above the present 72,000 units each year if it were willing to
increase the fixed selling expenses by $60,000. Would the increase fixed expenses be
justified?
Assume again that Andretti Company has sufficient capacity to produce 90,000 Daks
each year. A customer in a foreign market wants to purchase 15,000 Daks. Import duties
on the Daks would be $1.40 per unit, and costs for permits and licenses would be
$15,000. The only selling costs that would be associated with the order would be $2.60
per unit shipping cost. You have been asked by the president to compute the per unit
break-even price on this order.
The company has 800 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 unit cost figure 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 2 months. Andretti
Company has enough material on hand to continue to operate at 40% of nomal levels
for the two-month period. As an alternative, Andretti Company could close its plant
down entirely for the two months. If the plant were closed, fixed overhead costs would
continue at 50% of their normal level during the two-month period; the fixed selling
costs would be reduced by 25% while the plant was closed. What would be the dollar
advantage or disadvantage of closing the plant for the two-month period?
An outside manufacturer has offered to produce Daks for Andretti Company and to ship
them directly to Andretti Company customers. If Andretti Company accepts this offer,
the facilities that it uses to produce Daks would be idle; however, fixed overhead costs
would be reduced by 80%. Since the outside manufacturer would pay for all the costs
of shipping, the variable selling costs would be only 23 of their present amount.
Compute the unit cost that is relevant for comparison to whatever quoted price is
received from the outside manufacturer.
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