What are the answers to Required 4a, 4b, 4c, and 5? **Andretti Company Case Study: Production and Pricing Decisions**Andretti Company produces a single product called a Dak. The company normally produces and sells 84,000 Daks annually at a selling price of $54 per unit. The company's unit costs at this level of activity are given below:- **Direct materials:** $8.10- **Direct labor:** $9.70- **Variable manufacturing overhead:** $2.00- **Fixed manufacturing overhead:** $10.00 ($840,000 total)- **Variable selling expenses:** $2.70- **Fixed selling expenses:** $2.30 ($210,000 total)- **Total cost per unit:** $34.80A number of questions relating to the production and sale of Daks follow. Each question is independent.### Required:1. **Financial Advantage:** Assume that Andretti Company has sufficient capacity to produce 109,200 Daks each year without any increase in fixed manufacturing overhead 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 increasing an additional $120,000 in fixed selling expenses?2. **Break-even Price Per Unit:** Assume again that Andretti Company has sufficient capacity to produce 109,200 Daks each year. A customer in a foreign market wants to purchase 25,200 Daks. If Andretti accepts this order, it would have to pay import duties on the Daks of $4.70 per unit and an additional $51,120 for permits and licenses. The only selling cost 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?3. **Relevant Unit Cost:** 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. **Financial Advantage (Disadvantage) of Closing the Plant:** - 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

4. a) Contribution margin formula = sales -variable cost here the Andretti Company is going for the close of plant for two months where the production will not happen so the following measures are to be taken to compute the forgone contribution margin. 1. Material = $8.5 2. Fixed manufacturing overheads= $5*30%=$1.5 3. fixed selling expenses = $2.5 * 80%=$2 Sales per unit= 8.5+10+2.9+1.5+2.7+2=$27.6 The production during the strike period is 7000 units (84000 units/12 months) Contribution Margin Formula = 7000*27.6-7000*5.6 = 193200-39200 = $154000 the company should forgone the amount of $154000 for the period of two months due to strike.b) Total avoidable fixed costs are those which can be avoided by taking some measures, here the avoidable expenses are the fixed selling expenses and fixed manufacturing expenses for the company. they can be avoided only when the company closes the manufacturing unit for two months without any production, where the Electricity, Rent and expenses can be avoided. The total fixed cost that can be avoided is$3 ($2.5+$0.5). c) the financial advantage for the company is even in situation like strike the company can still manage to generate some revenue with its limited resources in a efficient manner. the disadvantage for the company can be many like decrease in the revenue, default in installments, obsolete of technology, wear and tear issues in equipment, loss for company, lack of management.