Andretti Company has a single product called a Dak. The company normally produces and sells 88,000...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Andretti Company has a single product called a Dak. The company normally produces and sells 88,000 Daks each year at a selling price of $58 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 $ 7.50 11.00 2.80 6.00 ($528,000 total) 2.70 4.00 ($352,000 total) $ 34.00 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 114,400 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 30% above the present 88,000 units each year if it were willing to increase the fixed selling expenses by $130,000. What is the financial advantage (disadvantage) of investing an additional $130,000 in fixed selling expenses? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 114,400 Daks each year. A customer in a foreign market wants to purchase 26,400 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $2.70 per unit and an additional $21,120 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 800 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? Andretti Company has a single product called a Dak. The company normally produces and sells 88,000 Daks each year at a selling price of $58 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 $ 7.50 11.00 2.80 6.00 ($528,000 total) 2.70 4.00 ($352,000 total) $ 34.00 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 114,400 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 30% above the present 88,000 units each year if it were willing to increase the fixed selling expenses by $130,000. What is the financial advantage (disadvantage) of investing an additional $130,000 in fixed selling expenses? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 114,400 Daks each year. A customer in a foreign market wants to purchase 26,400 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $2.70 per unit and an additional $21,120 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 800 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?
Expert Answer:
Answer rating: 100% (QA)
1a To determine the financial advantage or disadvantage of investing an additional 130000 in fixed selling expenses we need to compare the additional contribution margin generated from the increased u... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-1259307416
16th edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer
Posted Date:
Students also viewed these accounting questions
-
Required information Use the following information for the Problems below. (Algo) [The following information applies to the questions displayed below.] Golden Corporation's current year income...
-
REQUIRED Calculate the economic order quantity for the year. (4 marks) INFORMATION Suntan Limited produces a product which has a steady monthly demand of 4 000 units. The product requires a component...
-
How many circuits are required to accommodate kitchen appliances in an average size home?
-
Show by a series of equations (with structures) the first stage of the Edman method applied to a peptide that has leucine as its N-terminal residue.
-
This problem continues the Draper Consulting, Inc., situation from Problem 13-37 of Chapter 13. Refer to the comparative balance sheet for Draper Consulting. Requirement 1. Prepare the statement of...
-
Dallas Corporation wishes to market a new product for \(\$ 1.50\) a unit. Fixed costs to manufacture this product are \(\$ 100,000\) for less than 500,000 units and \(\$ 150,000\) for 500,000 or more...
-
Lavinia Lane received a check from Wilmore Enterprises, Inc., drawn on the Citizens Bank of Erehwon, in the sum of $10,000. Mrs. Lane indorsed the check Mrs. Lavinia Lane for deposit only, Account of...
-
2. A beer manufacturing company has three plants and three warehouses. The bottled beer is made in the plants and sold from the warehouses. The three plants are in TX, AZ and CA. The three warehouses...
-
Write three versions of a void method named printDoubleArray(); this will be an overloaded method. The first version takes one parameter: the array. It prints the array with entries separated by...
-
Describe the effects of risk assessment on control design. Is redundancy in a control system ever justifiable based on risk assessments? Explain your response and provide two examples to demonstrate...
-
What are some of the important characteristics of an internal auditing policy for follow-up reviews? Discuss briefly why each of your listed characteristics is important to the policy.
-
Discuss major threats to internal controls.
-
How does the audit program help manage an internal audit?
-
List and discuss two important practical considerations affecting how follow-up reviews are conducted.
-
The priority will be to provide an explanation of at least 1 page concerning the security concepts present when IoT devices network and communicate. Provide details for IoT device security: endpoint...
-
For a Poisson process of rate , the Bernoulli arrival approximation assumes that in any very small interval of length , there is either 0 arrivals with probability 1- or 1 arrival with probability ....
-
Actual costs often behave in a nonlinear fashion. Therefore, assumptions of linearity invalidate most cost behavior analyses. Do you agree or disagree with this statement? Briefly defend your...
-
Describe how fixed and variable costs per unit respond to volume increases.
-
Briefly describe the two most straightforward techniques for dividing a mixed cost into its fixed and variable components.
Study smarter with the SolutionInn App