Andretti Company has a single product called a Dak. The company normally produces and sells 85,000 Daks each year at a selling price of $64 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 3.20 6.00 ($510,000 total) 2.70 3.00 ($255,000 total) $ 34.40 A number of questions relating to the production and sale of Daks follow. Each question is independent. Required: 1-a. Assume Andretti Company has sufficient capacity to produce 110,500 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 30% above the present 85,000 units each year if it increased 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 Andretti Company has sufficient capacity to produce 110,500 Daks each year. A customer in a foreign market wants to purchase 25,500 Daks. If Andretti accepts this order, it would pay import duties on the Daks of $3.70 per unit and an additional $15,300 for permits and licenses. The only selling costs associated with the order would be $1.80 per unit shipping cost. What is the break-even price per unit on this order?
Andretti Company has a single product called a Dak. The company normally produces and sells 85,000 Daks each year at a selling price of $64 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 3.20 6.00 ($510,000 total) 2.70 3.00 ($255,000 total) $ 34.40 A number of questions relating to the production and sale of Daks follow. Each question is independent. Required: 1-a. Assume Andretti Company has sufficient capacity to produce 110,500 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 30% above the present 85,000 units each year if it increased 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 Andretti Company has sufficient capacity to produce 110,500 Daks each year. A customer in a foreign market wants to purchase 25,500 Daks. If Andretti accepts this order, it would pay import duties on the Daks of $3.70 per unit and an additional $15,300 for permits and licenses. The only selling costs associated with the order would be $1.80 per unit shipping cost. What is the break-even price per unit on this order?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Andretti Company has a single product called a Dak. The company normally produces and sells 85,000 Daks each year at a selling
price of $64 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
3.20
6.00
($510,000 total)
2.70
3.00 ($255,000 total)
$ 34.40
A number of questions relating to the production and sale of Daks follow. Each question is independent.
Required:
1-a. Assume Andretti Company has sufficient capacity to produce 110,500 Daks each year without any increase in fixed manufacturing
overhead costs. The company could increase its unit sales by 30% above the present 85,000 units each year if it increased 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 Andretti Company has sufficient capacity to produce 110,500 Daks each year. A customer in a foreign market wants to
purchase 25,500 Daks. If Andretti accepts this order, it would pay import duties on the Daks of $3.70 per unit and an additional
$15,300 for permits and licenses. The only selling costs associated with the order would be $1.80 per unit shipping cost. What is the
break-even price per unit on this order?
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