Andretti Company has a single product called a Dak. The company normally produces and sells 83,000 Daks each year at a s

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Andretti Company has a single product called a Dak. The company
normally produces and sells 83,000 Daks each year at a selling
price of $56 per unit. The company’s unit costs at this level of
activity are given below:
Direct materials $ 8.50
Direct labor 11.00
Variable manufacturing overhead 3.20
Fixed manufacturing overhead 3.00 ($249,000 total)
Variable selling expenses 3.70
Fixed selling expenses 3.50 ($290,500 total)
Total cost per unit $ 32.90
Required:
1-a. Assume that Andretti Company has sufficient capacity to
produce 103,750 Daks each year without any increase in fixed
manufacturing overhead costs. The company could increase its unit
sales by 25% above the present 83,000 units each year if it were
willing to increase the fixed selling expenses by $110,000. What is
the financial advantage (disadvantage) of investing an additional
$110,000 in fixed selling expenses?
b. Assume again that Andretti Company has sufficient capacity to
produce 103,750 Daks each year. A customer in a foreign market
wants to purchase 20,750 Daks. If Andretti accepts this order it
would have to pay import duties on the Daks of $2.70 per unit and
an additional $16,600 for permits and licenses. The only selling
costs that would be associated with the order would be $2.70 per
unit shipping cost. What is the break-even price per unit on this
order?
c. The company has 500 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?
d. 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 two months. Andretti Company has
enough material on hand to operate at 25% of normal levels for the
two-month period. As an alternative, Andretti could close its plant
down entirely for the two months. If the plant were closed, fixed
manufacturing overhead costs would continue at 40% of their normal
level during the two-month period and the fixed selling expenses
would be reduced by 20% during the two-month period. a. How much
total contribution margin will Andretti forgo if it closes the
plant for two months? b. How much total fixed cost will the company
avoid if it closes the plant for two months? c. What is the
financial advantage (disadvantage) of closing the plant for the
two-month period? d. Should Andretti close the plant for two
months?
e. An outside manufacturer has offered to produce 83,000 Daks
and ship them directly to Andretti’s customers. If Andretti Company
accepts this offer, the facilities that it uses to produce Daks
would be idle; however, fixed manufacturing overhead costs would be
reduced by 30%. Because the outside manufacturer would pay for all
shipping costs, the variable selling expenses would be only
two-thirds of their present amount. What is Andretti’s avoidable
cost per unit that it should compare to the price quoted by the
outside manufacturer?