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Managerial accounting $($SUM$)-$ problem $2($for $20$ credits$)$

Andretti Company has a single product called Daks. The company normally produces and sells

$72,000$ Daks each year at a selling price of $$28\mathrm{.}00$ per unit. The company's unit costs at this

level of activity are given below:

Direct material

Direct labour $.$

Variable manufacturing

overhead.

Fixed manufacturing overhead.

Variable selling expense

Fixed selling expense

Total cost per unit

$$12\mathrm{.}00$

$2\mathrm{.}50$

$1\mathrm{.}80$

$3\mathrm{.}20$

$1\mathrm{.}20$

$3\mathrm{.}00$

$$23\mathrm{.}70$

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

independent.

Required:

Assume that 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 $20\%$ above the present $72,000$ units each year if it were willing to

increase the fixed selling expenses by $$60,000.$ Would the increase fixed expenses be

justified?

Assume again that Andretti Company has sufficient capacity to produce $90,000$ Daks

each year. A customer in a foreign market wants to purchase $15,000$ Daks. Import duties

on the Daks would be $$1\mathrm{.}40$ per unit, and costs for permits and licenses would be

$$15,000.$ The only selling costs that would be associated with the order would be $$2\mathrm{.}60$

per unit shipping cost. You have been asked by the president to compute the per unit

break$-$even price on this order.

The company has $800$ Daks on hand that have some irregularities and are therefore

considered to be "seconds." Due to the irregularities, it will be impossible to sell these

units at the normal price through regular distribution channels. What unit cost figure is

relevant for setting a minimum selling price?

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 $2$ months. Andretti

Company has enough material on hand to continue to operate at $40\%$ of nomal levels

for the two$-$month period. As an alternative, Andretti Company could close its plant

down entirely for the two months. If the plant were closed, fixed overhead costs would

continue at $50\%$ of their normal level during the two$-$month period; the fixed selling

costs would be reduced by $25\%$ while the plant was closed. What would be the dollar

advantage or disadvantage of closing the plant for the two$-$month period?

An outside manufacturer has offered to produce Daks for Andretti Company and to ship

them directly to Andretti Company customers. If Andretti Company accepts this offer,

the facilities that it uses to produce Daks would be idle; however, fixed overhead costs

would be reduced by $80\%.$ Since the outside manufacturer would pay for all the costs

of shipping, the variable selling costs would be only $\frac{2}{3}$ of their present amount.

Compute the unit cost that is relevant for comparison to whatever quoted price is

received from the outside manufacturer.

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