Andretti Company has only one product called Dak. The company normally produces and sells 84,000 Mins each year at a selling price of $62 per unit. The unit costs of the company at this activity level are given below:

Direct materials	$	6.50
direct labor		9.00
Variable production load		2.60
Fixed production load		9.00	(total $756,000)
variable selling expenses		3.70
Fixed selling expenses		3.50	(total $294,000)
Total cost per unit	$	34.30

This is followed by a series of questions regarding the production and sale of Daks. Each question is independent.

Necessary:

Suppose 1 A. Andretti Company has the capacity to produce 113,400 Mins per year without any increase in fixed overall production costs. If the company were willing to increase its fixed sales expenses by $110,000, it could increase unit sales by 35% each year on top of the current 84,000 units. What is the financial advantage (disadvantage) of investing an additional $110,000 in fixed selling expenses?

1-b. Is the additional investment justified?

2. Assume again that Andretti Company has sufficient capacity to produce 113,400 Mins per year. A customer in the foreign market wants to buy 29,400 Mins. If Andretti accepts this order, he will have to pay an import tax of $2.70 per unit for the Daks and an additional $20,580 for permits and licenses. The only selling cost attributable to the order will be $2.70 per unit shipping cost. What is the break-even price per unit in this order?

3. The company has 700 Minutes on hand, which has some irregularities and is therefore considered "seconds". Due to irregularities, these units will not be able to be sold at normal prices through normal distribution channels. What is the relevant unit cost figure for determining the minimum selling price?

4. Andretti Company is unable to purchase more materials for the production of Daks due to a strike at its supplier's factory. The strike is expected to last two months. Andretti Company has enough material to operate at 25% of normal levels for the two-month period. Alternatively, Andretti could close its factory completely for two months. If the factory was closed, fixed production overheads would continue at 35% of their normal levels in the two-month period and fixed selling expenses would be reduced by 20% in the two-month period.

A. How much will Andretti give up his total contribution margin if he closes the factory for two months?

B. How much will the company avoid in total fixed costs if it closes the factory for two months?

C. What is the financial advantage (disadvantage) of closing the factory for two months?

D. Should Andretti close the factory for two months?

5. An outside manufacturer offered to produce 84,000 Mins and ship them directly to Andretti's customers. If the Andretti Company accepts this offer, the facilities it uses to produce Daks will remain idle; however, fixed production overheads will be reduced by 30%. Since the outside producer will pay all shipping costs, variable selling costs will be only two-thirds of their current amount. What is Andretti's avoidable cost per unit that should compare to the price quoted by the outside manufacturer?

Answer rating: 100% (QA)

To answer the given questions lets go through them one by one 1a To calculate the financial advantage or disadvantage of investing an additional 110000 in fixed selling expenses we need to determine t... View the full answer