Question
Only looking for help with 4 a,b,c,d ... I have answerd all other qustions! Andretti Company has a single product called a Dak. The company
Only looking for help with 4 a,b,c,d ... I have answerd all other qustions!
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 $48 per unit. The companys unit costs at this level of activity are given below:
Direct materials | $ | 7.50 | |
Direct labor | 10.00 | ||
Variable manufacturing overhead | 2.60 | ||
Fixed manufacturing overhead | 8.00 | ($664,000 total) | |
Variable selling expenses | 2.70 | ||
Fixed selling expenses | 4.50 | ($373,500 total) | |
Total cost per unit | $ | 35.30 | |
Required:
Assume that Andretti Company has sufficient capacity to produce 107,900 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 30% above the present 83,000 units each year if it were willing to increase the fixed selling expenses by $150,000.
Assume again that Andretti Company has sufficient capacity to produce 107,900 Daks each year. A customer in a foreign market wants to purchase 24,900 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $1.70 per unit and an additional $19,920 for permits and licenses.
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 35% 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?
Only looking for help with 4 a,b,c,d ... I have answerd all other qustions!
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