Andretti Company has a single product called a Dak. The company normally produces and sells 89,000 Daks each year at a selling price of $56 per unit. The company’s unit costs at this level of activity are given below: Direct materials $ 8.50 Direct labor 8.00 Variable manufacturing overhead 2.70 Fixed manufacturing overhead 4.00 ($356,000 total) Variable selling expenses 1.70 Fixed selling expenses 4.00 ($356,000 total) Total cost per unit $ 28.90 An outside manufacturer offered to produce 89,000 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 75%. 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 it should compare to the price quoted by the outside manufacturer?
Andretti Company has a single product called a Dak. The company normally produces and sells 89,000 Daks each year at a selling price of $56 per unit. The company’s unit costs at this level of activity are given below: Direct materials $ 8.50 Direct labor 8.00 Variable manufacturing overhead 2.70 Fixed manufacturing overhead 4.00 ($356,000 total) Variable selling expenses 1.70 Fixed selling expenses 4.00 ($356,000 total) Total cost per unit $ 28.90 An outside manufacturer offered to produce 89,000 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 75%. 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 it should compare to the price quoted by the outside manufacturer?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Andretti Company has a single product called a Dak. The company normally produces and sells 89,000 Daks each year at a selling price of $56 per unit. The company’s unit costs at this level of activity are given below:
| Direct materials | $ 8.50 | |
|---|---|---|
| Direct labor | 8.00 | |
| Variable manufacturing |
2.70 | |
| Fixed manufacturing overhead | 4.00 | ($356,000 total) |
| Variable selling expenses | 1.70 | |
| Fixed selling expenses | 4.00 | ($356,000 total) |
| Total cost per unit | $ 28.90 |
An outside manufacturer offered to produce 89,000 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
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