Problem $13\mathrm{.}18($Algo$)$ Relevant Cost Analysis In a Varlety of Sltuatlons $[$L$013\mathrm{.}2,$ L$013\mathrm{.}3,$ L$013\mathrm{.}4]$

$12\mathrm{.}5$

points

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 $$62$ 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 Andrettl Company has sufficlent capaclty to produce $113,100$ Daks each year without any Increase In fixed

manufacturing overhead costs. The company could increase its unit sales by $30\%$ above the present $87,000$ units each year if it were

Willing to Increase the fixed selling expenses by $$150,000.$ What is the financlal advantage $($disadvantage$)$ of Investing an additlonal

$$150,000$ in fixed selling expenses?

$1-$b$.$ Would the additional Investment be Justified?

Assume again that Andretti Company has sufficlent capacity to produce $113,100$ Daks each year. A customer In a forelgn market

wants to purchase $26,100$ Daks. If Andrettl accepts this order It would have to pay Import dutles on the Daks of $$1\mathrm{.}70$ per unit and an

additional $$15,660$ for permits and licenses. The only selling costs that would be assoclated with the order would be $$1\mathrm{.}70$ per unit

shipping cost. What is the break$-$even price per unit on this order?

The company has $500$ Daks on hand that have some Irregulartiles 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 distrlbutlon channels. What is the unit cost

figure that is relevant for setting a minimum selling price?

Due to a strike in its supplier's plant, Andrettl Company is unable to purchase more materlal for the productlon of Daks. The strike is

expected to last for two months. Andrettl Company has enough materlal on hand to operate at $25\%$ of normal levels for the two$-$month

period. As an alternative, Andrettl could close Its plant down entirely for the two months. If the plant were closed, fixed manufacturing

overhead costs would continue at $35\%$ of thelr normal level during the two$-$month period and the fixed selling expenses would be

reduced by $20\%$ during the two$-$month perlod.

a$.$ How much total contribution margin will Andrettl forgo if It closes the plant for two months?

b$.$ How much total fixed cost will the company avold if it closes the plant for two months?

c$.$ What is the financlal advantage $($disadvantage$)$ of closing the plant for the two$-$month perlod?

d$.$ Should Andrettl close the plant for two months?

An outside manufacturer has offered to produce $87,000$ Daks and ship them directly to Andrettl's customers. If Andrettl Company

accepts this offer, the facilitles that it uses to produce Daks would be idle; however, fixed manufacturling overhead costs would be

reduced by $30\%.$ Because the outside manufacturer would pay for all shipping costs, the varlable selling expenses would be only two$-$

thirds of thelr present amount. What is Andrettl's avoidable cost per unit that It should compare to the price quoted by the outside

manufacturer?

Complete this question by entering your answers in the tabs below.

Req $1A$

Req $1$B

Req $4A$ to $4C$

Req $4D$

Req $5$

Assume that Andretti Company has sufficient capacity to produce $113,100$ Daks each year without any increase in fixed

manufacturing overhead costs. The company could increase its unit sales by $30\%$ above the present $87,000$ units each year if

it were willing to increase the fixed selling expenses by $$150,000.$ What is the financial advantage $($disadvantage$)$ of investing

an additional $$150,000$ in fixed selling expenses?