Andretti Company has only one product called Dak. The company normally produces and sells 60,000 Daks each year at a selling price of $32 per unit. The unit costs of the company at this level of activity are as follows:

Direct materials $10.00
Direct labor 4.50
Variable manufacturing overhead 2.30
Fixed manufacturing overhead 5.00 ($300,000 total)
Variable selling expense 1.20
Fixed selling expense 3.50 ($210,000 total )
Total cost per unit $26.50

A series of questions related to the production and sale of Daks follow. Each question is independent.

Required: 1-a. Assume that the Andretti Company has sufficient capacity to produce 90,000 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the current 60,000 units each year if it were willing to increase fixed selling expenses by $80,000. Calculate the incremental net operating income.

Sales increase in units:___________
Contribution margin per unit:__________
Incremental contribution margin:________
Less aggregate fixed selling expenses:________
Incremental net operating income:_________

1 B. Would the increase in fixed selling expenses be justified? No Yes

2. Assume again that the Andretti Company has sufficient capacity to produce 90,000 Daks each year. A customer in a foreign market wants to buy 20,000 Daks. Import duties on the Daks would be $1.70 per unit, and the costs for permits and licenses would be $9,000. The only selling costs that would be associated with the order would be $3.20 per unit shipping cost. Calculate the equilibrium price per unit on this order. (Round your answers to 2 decimal places.)

Variable manufacturing cost per unit:_________
Import duties per unit:___________
Permits and licenses:____________
Shipping cost per unit:___________
Break-even price per unit:__________

3. The company has 1000 Daks available which have some irregularities and are therefore considered "seconds". Due to the irregularities, it will be impossible to sell these units at normal price through regular distribution channels. What unit cost figure is relevant to establishing a minimum selling price? (Round your answer to 2 decimal places.)

Relevant unit cost ____________ per unit

4. Due to a strike at its supplier's plant, the Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last two months. Andretti Company has enough material on hand to operate at 30% of normal levels over the two month period. Alternatively, Andretti could shut down its plant entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would remain at 60% of their normal level during the two-month period, and fixed selling expenses would be reduced by 20%. What would be the profit impact of shutting down the plant for the two-month period?

Lost Contribution Margin: __________
Fixed Costs
Fixed Manufacturing Overhead: _____________
Fixed Selling Cost: ___________
Net Disadvantage of Closing the Plant: _____________

5. A third-party manufacturer has offered to produce Daks and ship them directly to Andretti customers. If Andretti Company accepts this offer, the facilities it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by 75%. Because the third-party manufacturer would pay all shipping costs, the variable selling costs would be only two-thirds of your current amount. Calculate the unit cost that is relevant for comparison with the price quoted by the third-party manufacturer. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Variable production costs:___________
Fixed manufacturing overhead cost:_________
Variable selling expenses:____________
Total avoided costs:_____________

Answer rating: 100% (QA)

1 a Sales increase in units 25 of 60000 15000 units Total units to be sold 60000 15000 75000 units Contribution margin per unit Selling price per unit ... View the full answer