Problem 13 18 REV (Algo) Relevant Cost Analysis in a variety of Situations LO13 2, LO13 3, LO13 4 Andretti Company has a single product called a Dak The company normally produces and sells 88,000 Daks each year at a selling price of $58 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 $8 50 11 00 2,90 3 00 ($264,000 total) 2 70 3 00 ($264,000 total) $31 10 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 105,600 Daks each year without any increase in fixed manufacturing overhead costs The company could increase its unit sales by 20 above the present 88,000 units each year if it were willing to increase the fixed selling expenses by $110 000 What is the financial advantage (disadvantage) of investing an additional $110 000 in fixed selling expenses 1 b Would the additional investment be justified 2 The company has 500 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 3 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 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

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Problem 13 18 REV (Algo) Relevant Cost Analysis in a variety of Situations  LO13 2, LO13 3, LO13 4  Andretti Company has a single product called a Dak  The company normally produces and sells 88,000 Daks each year at a selling price of $58 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 $8 50 11 00 2,90 3 00 ($264,000 total) 2 70 3 00 ($264,000 total) $31 10 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 105,600 Daks each year without any increase in fixed  manufacturing overhead costs  The company could increase its unit sales by 20  above the present 88,000 units each year if it were willing to increase the fixed selling expenses by $110 000  What is the financial advantage (disadvantage) of investing an additional $110 000 in fixed selling expenses  1 b  Would the additional investment be justified  2  The company has 500 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  3  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 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

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Problem 13-18 REV (Algo) Relevant Cost Analysis in a variety of Situations [LO13-2, LO13-3, LO13-4] Andretti Company has a single product called a Dak. The

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