Andretti Company has a single product called a Dak. The companynormally produces and sells 120,000 Daks each year at a sellingprice of $92 per unit. The company’s unit costs at this level ofactivity follow:

  

Direct materials	$	26.50
Direct labour		21.00
Variable manufacturing overhead		18.80
Fixed manufacturing overhead		5.00	$600,000 total
Variable selling expenses		7.20
Fixed selling expenses		3.50	$420,000 total
Total cost per unit	$	82.00

  

A number of questions relating to the production and sale ofDaks follow. Consider each question separately.

  

Required:

1.	Assume that Andretti Company has sufficient capacity to produce200,000 Daks every year without any increase in fixed manufacturingoverhead costs. The company could increase its sales by 25% abovethe present 120,000 units each year if it were willing to increasethe fixed selling expenses by $37,500.

  

a.	Calculate the incremental net operating income. (Do notround intermediate calculations.)

    

b.	Would the increased fixed expenses be justified?
	Yes No

  

2.

Assume again that Andretti Company has sufficient capacity toproduce 200,000 Daks every year. A customer in a foreign marketwants to purchase 40,000 Daks. Import duties on the Daks would be$5.70 per unit, and costs for permits and licences would be$18,000. The only selling costs that would be associated with theorder would be $9.20 per unit shipping cost. Compute the per-unitbreak-even price on this order. (Do not round intermediatecalculations. Round your answer to 2 decimal places.)

  

      

3.

The company has 3,000 Daks on hand that have some irregularitiesand are therefore considered to be seconds. Due to theirregularities, it will be impossible to sell these units at thenormal price through regular distribution channels. What unit costfigure is relevant for setting a minimum selling price?(Round your answer to 2 decimal places.)

  

      

4.

Due to a strike in its supplier’s plant, Andretti Company isunable to purchase more material for the production of Daks. Thestrike is expected to last for two months. Andretti Company hasenough materials on hand to continue to operate at 30% of normallevels for the two-month period. As an alternative, Andretti couldclose its plant down entirely for the two months. If the plant wereclosed, fixed overhead costs would continue at 60% of their normallevel during the two-month period; the fixed selling costs would bereduced by 20% while the plant was closed. What would be the dollaradvantage or disadvantage of closing the plant for the two-monthperiod? (Do not round intermediatecalculations.)

  
      

5.

An outside manufacturer has offered to produce Daks for AndrettiCompany and to ship them directly to Andretti’s customers. IfAndretti Company accepts this offer, the facilities that it uses toproduce Daks would be idle; however, fixed overhead costs would bereduced by 75% of their present level. Since the outsidemanufacturer would pay all the costs of shipping, the variableselling costs would be only two-thirds of their present amount.Compute the unit cost figure relevant for comparison to whateverquoted price is received from the outside manufacturer. (Donot round intermediate calculations. Round your answer to 2 decimalplaces.)