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ach year at a selling price of $54 per unit. The company's unit costs at this level of activity Direct materials 10.00 2.90 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fised selling expenses Total cost per unit 5.00 (5420,000 total) 2.70 2.50 (8210,00 total) $ 31.60 A number of questions relating to the production and sale of Daks folow. Each question is Required: .Assume that Andretti Company has sufficient capacity to produce 109200 Daks each yea: nerease in fixed manufacturing overhead cos. The ceompany could increase its unit sales by

ach year at a selling price of $54 per unit. The company's unit costs at this level of activity Direct materials 10.00 2.90 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fised selling expenses Total cost per unit 5.00 (5420,000 total) 2.70 2.50 (8210,00 total) $ 31.60 A number of questions relating to the production and sale of Daks folow. Each question is Required: .Assume that Andretti Company has sufficient capacity to produce 109200 Daks each yea: nerease in fixed manufacturing overhead cos. The ceompany could increase its unit sales by

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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What are the answers to Required 1, 2, and 3?

Andretti Company has a single product called a Dak. The company nomally produces and sells 84,000 Daks each year at a selling price of $54 per unit. The company's unit costs at this level of activity are given below: Direct materials $ H.50 Direct labor 10.00 2.90 Variable manufacturing overhead Fixed manufacturing overhcad Variable selling expenses Fised selling expenses Total cost per unit 5.00 (S420,000 total) 2.70 2.50 ($210,000 total) $ 31.60 A number of questions relating to the production and sale of Daks follow. Each question is independent. Required: 1. Assume that Andretti Company has sufficient capacity to praduce 109,200 Daks each year without any increase in fixed manufacturing overhcad costs. The company could increase its unit sales by 30% above the present 84,000 units each year if it were willing to increase the fixed selling expenses by $120,000. What is the financial advantage (disadvantage) of investing an additional $120,000 in fixed selling expenses? Financial advantage 2. Assume again that Andretti Company has sufficient capacity to produce 109,200 Daks each year. A customer in a forcign market wants to purchase 25,200 Daks. If Andretti accepts this order it woukd have to pay import duties on the Daks of $4.70 per unit and an additional $15,120 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? Break-even price per unit 3. 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? Relevant unit cost per unit 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 at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the rwo months. If the plant were closed, fixed manufacturing overhead costs would continue at 30% 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 contrilution 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? Forgone contribution margin Total avoidable fixed costs Financial advantage (disadvantage) 5. An outside manufacturer has offered to produce 84,000 Daks and ship them directly to Andretti's custamers. 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 two-thirds of their present amount. What is Andretti's avoidable cost per unit that it should compare to the price quoted by the outside manufacturer? Avoidable cost per unit
Transcribed Image Text:Andretti Company has a single product called a Dak. The company nomally produces and sells 84,000 Daks each year at a selling price of $54 per unit. The company's unit costs at this level of activity are given below: Direct materials $ H.50 Direct labor 10.00 2.90 Variable manufacturing overhead Fixed manufacturing overhcad Variable selling expenses Fised selling expenses Total cost per unit 5.00 (S420,000 total) 2.70 2.50 ($210,000 total) $ 31.60 A number of questions relating to the production and sale of Daks follow. Each question is independent. Required: 1. Assume that Andretti Company has sufficient capacity to praduce 109,200 Daks each year without any increase in fixed manufacturing overhcad costs. The company could increase its unit sales by 30% above the present 84,000 units each year if it were willing to increase the fixed selling expenses by $120,000. What is the financial advantage (disadvantage) of investing an additional $120,000 in fixed selling expenses? Financial advantage 2. Assume again that Andretti Company has sufficient capacity to produce 109,200 Daks each year. A customer in a forcign market wants to purchase 25,200 Daks. If Andretti accepts this order it woukd have to pay import duties on the Daks of $4.70 per unit and an additional $15,120 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? Break-even price per unit 3. 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? Relevant unit cost per unit 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 at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the rwo months. If the plant were closed, fixed manufacturing overhead costs would continue at 30% 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 contrilution 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? Forgone contribution margin Total avoidable fixed costs Financial advantage (disadvantage) 5. An outside manufacturer has offered to produce 84,000 Daks and ship them directly to Andretti's custamers. 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 two-thirds of their present amount. What is Andretti's avoidable cost per unit that it should compare to the price quoted by the outside manufacturer? Avoidable cost per unit
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