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 $60 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. $9.50 11.00 3.70 6.00 ($510,000 total) 4.70 3.50 ($297,500 total) $ 38.40 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 106,250 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 25% above the present 85,000 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? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 106,250 Daks each year. A customer in a foreign market wants to purchase 21,250 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $1.70 per unit and an additional $12,750 for permits and licenses. The only selling costs that would be associated with the order would be $1.90 per unit shipping cost. What is the break-even price per unit on this order? 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?
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 $60 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. $9.50 11.00 3.70 6.00 ($510,000 total) 4.70 3.50 ($297,500 total) $ 38.40 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 106,250 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 25% above the present 85,000 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? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 106,250 Daks each year. A customer in a foreign market wants to purchase 21,250 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $1.70 per unit and an additional $12,750 for permits and licenses. The only selling costs that would be associated with the order would be $1.90 per unit shipping cost. What is the break-even price per unit on this order? 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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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 $60 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
$ 9.50
11.00
3.70
6.00 ($510,000 total)
4.70
3.50
($297,500 total)
$ 38.40
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 106,250 Daks each year without any increase in fixed
manufacturing overhead costs. The company could increase its unit sales by 25% above the present 85,000 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?
1-b. Would the additional investment be justified?
2. Assume again that Andretti Company has sufficient capacity to produce 106,250 Daks each year. A customer in a foreign market
wants to purchase 21,250 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $1.70 per unit and an
additional $12,750 for permits and licenses. The only selling costs that would be associated with the order would be $1.90 per unit
shipping cost. What is the break-even price per unit on this order?
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?
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 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?
5. An outside manufacturer has offered to produce 85,000 Daks and ship them directly to Andretti's customers. 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?
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