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Andretti Company has a single product called a Dak. The company normally produces and sells 82,000 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 110,700 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 82,000 units each year if it were willing to increase the fixed selling expenses by $130,000. What is the financial advantage (disadvantage) of investing an additional $130,000 in fixed selling expenses? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 110,700 Daks each year. A customer in a foreign market wants to purchase 28,700 Daks. If Andretti accepts this order it would have to pay import dutles on the Daks of $470 per unit and an additional $22,960 for permits and licenses. The only selling costs that would be associated with the order would be $1.50 per unit shipping cost What is the break-even price per unit on this order? 3. The company has 600 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 supplier's plant, Andretti Company is unable to purchase more materialfor 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 leveis for the two-month perlod. As an alfernative. Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead coss would contnue at 35% of their normal level during the two-month period and the fixed selling expenses would be reduced by 2 gitung the two-month period. 5. An outside manufacturer has offered to produce 82,000 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 twothirds of their present amount. What is Andretti's avoidable cost per unit that it should compare to the price quoted by the outside manufacturer
