Problem 12-18 Relevant Cost Analysis in a Variety of Situations [L012-2, LO12-3, LO12-4] Andretti Company has a single product called Dak. The company normally produces and sells 90,000 Daks each year at o selling price of $40 per unit. The company's unit costs at this level of activity are given below Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit 7.50 11.00 2.60 18.00 (s9ae,838 total) 2.70 5.50 (S495,000 total) 39.30 A number of questions relating to the production and sale of Daks follow. Each question is independent Required: 1-o. Assume that Andretti Company hos sufficlent copacity to produce 121500 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 90,000 units each year if it were wiling 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 121,500 Daks each year. A customer in a foreign market wants to purchase 31,500 Daks.f Andretti accepts this order it would have to pay import duties on the Daks of$3.70 per unit and an additional $28,350 for permits and licenses. The only selling costs that would be associated with the order would be $2.70 per unit shipping cost. What is the break-even price per unit on this order? 3. The compeny has 500 Daks on hand that have some irregularities and are therefore considered to be seconds."Due to the rregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure thet 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 material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate et 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 end the fixed selling expenses would be reduced by 20% during the two-month period. o. How much total contribution mergin 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? 5. An outside manufacturer has offered to produce 90,000 Daks and ship them directly to Andretti's customers. If Andretti Company occepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufocturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two. thirds of their present omount. What is Andretti's ovoidable cost per unit that it should compare to the price quoted by the outside Assume that Andretti Company has sufficient capacity to produce 121,500 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 90,000 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? show less Assume that Andretti Company has sufficient capacity to produce 121,500 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 90,000 units each year if it were willing to increase the fixed selling expenses by $140,000. Would the additional investment be justified? Yes Problem 12-18 Relevant Cost Analysis in a Variety of Situations [L012-2, LO12-3, LO12-4] Andretti Company has a single product called Dak. The company normally produces and sells 90,000 Daks each year at o selling price of $40 per unit. The company's unit costs at this level of activity are given below Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit 7.50 11.00 2.60 18.00 (s9ae,838 total) 2.70 5.50 (S495,000 total) 39.30 A number of questions relating to the production and sale of Daks follow. Each question is independent Required: 1-o. Assume that Andretti Company hos sufficlent copacity to produce 121500 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 90,000 units each year if it were wiling 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 121,500 Daks each year. A customer in a foreign market wants to purchase 31,500 Daks.f Andretti accepts this order it would have to pay import duties on the Daks of$3.70 per unit and an additional $28,350 for permits and licenses. The only selling costs that would be associated with the order would be $2.70 per unit shipping cost. What is the break-even price per unit on this order? 3. The compeny has 500 Daks on hand that have some irregularities and are therefore considered to be seconds."Due to the rregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure thet 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 material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate et 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 end the fixed selling expenses would be reduced by 20% during the two-month period. o. How much total contribution mergin 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? 5. An outside manufacturer has offered to produce 90,000 Daks and ship them directly to Andretti's customers. If Andretti Company occepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufocturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two. thirds of their present omount. What is Andretti's ovoidable cost per unit that it should compare to the price quoted by the outside Assume that Andretti Company has sufficient capacity to produce 121,500 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 90,000 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? show less Assume that Andretti Company has sufficient capacity to produce 121,500 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 90,000 units each year if it were willing to increase the fixed selling expenses by $140,000. Would the additional investment be justified? Yes