Andretti Company has a single product called a Dak. The companynormally produces and sells 83,000 Daks each year at a sellingprice of $60 per unit. The company’s unit costs at this level ofactivity are given below:

Direct materials $ 9.50

Direct labor 9.00

Variable manufacturing overhead 2.30

Fixed manufacturing overhead 9.00 ($747,000 total)

Variable selling expenses 2.70

Fixed selling expenses 3.50 ($290,500 total)

Total cost per unit $ 36.00

1-a. Assume that Andretti Company has sufficient capacity toproduce 103,750 Daks each year without any increase in fixedmanufacturing overhead costs. The company could increase its unitsales by 25% above the present 83,000 units each year if it werewilling to increase the fixed selling expenses by $100,000. What isthe financial advantage (disadvantage) of investing an additional$100,000 in fixed selling expenses?

1-b. Would the additional investment be justified?

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 material on hand to operate at 25% of normal levels for thetwo-month period. As an alternative, Andretti could close its plantdown entirely for the two months. If the plant were closed, fixedmanufacturing overhead costs would continue at 35% of their normallevel during the two-month period and the fixed selling expenseswould be reduced by 20% during the two-month period.

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

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