Question

Andretti Company has a single product called a Dak. The company normally produces and sells 82,000 Daks each year at a selling price of $58 per unit. The company's unit costs at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit $ 6.50 10.00 2.00 4.00 ($328,000 total) 3.70 3.50 ($287,000 total) $29.70 A number of questions relating to the production and sale of Daks follow. Each question is independent. Required: 1-a. Assume that Andretti Company has sufficient capacity to produce 102,500 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 25% above the present 82,000 units each year if it were willing to increase the fixed selling expenses by $120,000. What is the financial advantage (disadvantage) of investing an additional $120,000 in fixed selling expenses? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 102,500 Daks each year. A customer in a foreign market wants to purchase 20,500 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $2.70 per unit and an additional $14,350 for permits and licenses. The only selling costs that would be associated with the order would be $1.60 per unit shipping cost. What is the break-even price per unit on this order? 3. The company has 600 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 is the unit cost figure that is relevant for setting a minimum selling price? - - - - .- . - .- - .- - .- - . - . -L I . --- -- -I -- - ---- - --- - -I.- TL - - - -

Answer 1

Below table is the desired results: -

Calculation of Contribution Margin per unit
Selling Price	58.00
Direct Material	6.50
Direct Labor	10.00
Variable Manufacturing Overhead	2.00
Variable Selling Expense	3.70
Contribution Margin Per Unit	35.80	58-22.20
Additional contribution for sale	733,900.00	35.80*20500
Increase in Fixed Selling Expenses	120,000.00
Financial Advantage(disadvantage)	613,900.00	733900-120000
Net Advantage
Since there is additional profit,
the additional investment is justified	YES
Calculation of Break-even Price
Direct Material	6.50
Direct Labor	10.00
Variable Manufacturing Overhead	2.00
Import Duties	2.70
Selling Cost	1.60
Unit Variable Cost	22.80
Total Cost	481,750.00	20500*22.8+14350
Break-even Price	23.50	481750/20500

Please ask multiple questions separately