Andretti Company has a single product called a Dak. The companynormally produces and sells 86,000 Daks each year at a sellingprice of $46 per unit. The company’s unit costs at this level ofactivity are given below:
| | | |
| Direct materials | $ | 8.50 | |
| Direct labor | | 10.00 | |
| Variable manufacturing overhead | | 3.30 | |
| Fixed manufacturing overhead | | 6.00 | ($516,000 total) |
| Variable selling expenses | | 4.70 | |
| Fixed selling expenses | | 5.50 | ($473,000 total) |
| Total cost per unit | $ | 38.00 | |
|
A number of questions relating to the production and sale ofDaks follow. Each question is independent.
Required:
1-a. Assume that Andretti Company has sufficient capacity toproduce 116,100 Daks each year without any increase in fixedmanufacturing overhead costs. The company could increase its salesby 35% above the present 86,000 units each year if it were willingto increase the fixed selling expenses by $150,000. Calculate theincremental net operating income. (Round your answers tothe nearest whole number.)
1-b. Would the increased fixed selling expenses bejustified?
2. Assume again that Andretti Company has sufficient capacity toproduce 116,100 Daks each year. A customer in a foreign marketwants to purchase 30,100 Daks. Import duties on the Daks would be$2.70 per unit, and costs for permits and licenses would be$21,070. The only selling costs that would be associated with theorder would be $1.50 per unit shipping cost. Compute the per unitbreak-even price on this order. (Round your answers to 2decimal places.)
3. The company has 500 Daks on hand that have someirregularities and are therefore considered to be "seconds." Due tothe irregularities, it will be impossible to sell these units atthe normal price through regular distribution channels. What unitcost figure 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 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 40% of their normallevel during the two-month period and the fixed selling expenseswould be reduced by 20%. What would be the impact on profits ofclosing the plant for the two-month period? (Any lossesshould be indicated by a minus sign. Round all calculations(intermediate and final) to whole numbers. Round unit calculationsto whole numbers.)
5. An outside manufacturer has offered to produce Daks and shipthem directly to Andretti’s customers. If Andretti Company acceptsthis offer, the facilities that it uses to produce Daks would beidle; however, fixed manufacturing overhead costs would be reducedby 30%. Because the outside manufacturer would pay for all shippingcosts, the variable selling expenses would be only two-thirds oftheir present amount. Compute the unit cost that can be avoided ifpurchased from the outside manufacturer. (Do not roundintermediate calculations. Round your answer to 2decimal places.)
