Andretti Company has a single product called a Dak. The company normally produces and sells 86,000 Daks each year at a selling price of $62 per unit. The company’s unit costs at this level of activity are given below:

Direct materials $ 9.50

Direct labor 9.00

Variable manufacturing overhead 3.20

Fixed manufacturing overhead 5.00 ($430,000 total)

Variable selling expenses 4.70

Fixed selling expenses 4.00 ($344,000 total)

Total cost per unit $ 35.40

A number of questions relating to the production and sale of Daks follow. Each question is independent.

Required:

1-a. Assume Andretti Company has sufficient capacity to produce 111,800 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 30% above the present 86,000 units each year if it increased 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 Andretti Company has sufficient capacity to produce 111,800 Daks each year. A customer in a foreign market wants to purchase 25,800 Daks. If Andretti accepts this order, it would pay import duties on the Daks of $2.70 per unit and an additional $15,480 for permits and licenses. The only selling costs associated with the order would be $2.20 per unit shipping cost. What is the break-even price per unit on this order?

3. The company has 500 Daks on hand with some irregularities that make it impossible to sell them at the normal price through regular distribution channels. What unit cost figure is relevant for setting a minimum selling price to liquidate these units?

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.

How much total contribution margin will Andretti forgo if it closes the plant for two months?

How much total fixed cost will the company avoid if it closes the plant for two months?

What is the financial advantage (disadvantage) of closing the plant for the two-month period?

Should Andretti close the plant for two months?

5. An outside manufacturer offered to produce 86,000 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?

Transcribed Image Text:Complete this question by entering your answers in the tabs below. Required 1A Required 1B Required 2 Required 3 Forgone contribution margin Total avoidable fixed costs Financial (disadvantage) Required 4A to 4C 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. Note: Round number of units produced to the nearest whole number. Round your intermediate calculations and final answers to 2 decimal places. Any losses or reductions should be indicated by a minus sign. Required 4D Required 5 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? < Required 3 Required 4D > Show less A
Transcribed Image Text:Complete this question by entering your answers in the tabs below. Required 1A Required 1B Required 2 An outside manufacturer offered to produce 86,000 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? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Avoidable cost per unit Required 3 Required 4A to 4C < Required 4D Required 4D Required 5 Required 5 Show less

Question

Andretti Company has a single product called a Dak. The company normally produces and sells 86,000 Daks each year at a selling price of $62 per unit. The company’s unit costs at this level of activity are given below:

Direct materials	$ 9.50
Direct labor	9.00
Variable manufacturing overhead	3.20
Fixed manufacturing overhead	5.00	($430,000 total)
Variable selling expenses	4.70
Fixed selling expenses	4.00	($344,000 total)
Total cost per unit	$ 35.40

A number of questions relating to the production and sale of Daks follow. Each question is independent.

Required:

1-a. Assume Andretti Company has sufficient capacity to produce 111,800 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 30% above the present 86,000 units each year if it increased 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 Andretti Company has sufficient capacity to produce 111,800 Daks each year. A customer in a foreign market wants to purchase 25,800 Daks. If Andretti accepts this order, it would pay import duties on the Daks of $2.70 per unit and an additional $15,480 for permits and licenses. The only selling costs associated with the order would be $2.20 per unit shipping cost. What is the break-even price per unit on this order?

3. The company has 500 Daks on hand with some irregularities that make it impossible to sell them at the normal price through regular distribution channels. What unit cost figure is relevant for setting a minimum selling price to liquidate these units?

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.

How much total contribution margin will Andretti forgo if it closes the plant for two months?
How much total fixed cost will the company avoid if it closes the plant for two months?
What is the financial advantage (disadvantage) of closing the plant for the two-month period?
Should Andretti close the plant for two months?

5. An outside manufacturer offered to produce 86,000 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?

Complete this question by entering your answers in the tabs below.
Required 1A Required 1B
Required 2 Required 3
Forgone contribution margin
Total avoidable fixed costs
Financial (disadvantage)
Required 4A to
4C
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.
Note: Round number of units produced to the nearest whole number. Round your intermediate calculations and final answers
to 2 decimal places. Any losses or reductions should be indicated by a minus sign.
Required 4D Required 5
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?
< Required 3
Required 4D >
Show less A

Complete this question by entering your answers in the tabs below.
Required 1A Required 1B Required 2
An outside manufacturer offered to produce 86,000 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?
Note: Do not round intermediate calculations. Round your answers to 2 decimal places.
Avoidable cost per unit
Required 3
Required 4A to
4C
< Required 4D
Required 4D Required 5
Required 5
Show less

Accepted Answer

It is the process of making decisions that involve the management of costs to achieve long-term…