Reference no: EM133146737

Question - Andretti Company has a single product called a Dak. The company normally produces and sells 60,000 Daks each year at a selling price of $32 per unit. The company's unit costs at this level of activity are given below:

Direct materials $10.00

Direct labor 4.50

Variable manufacturing overhead 2.30

Fixed manufacturing overhead 5.00 ($300,000 total)

Variable selling expenses 1.20

Fixed selling expenses 3.50 ($210,000 total)

Total cost per unit $26.50

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

Required -

1. Assume that Andretti Company has sufficient capacity to produce 90,000 Daks each year. A customer in a foreign market wants to purchase 20,000 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $1.70 per unit and an additional $9,000 for permits and licenses. The only selling costs that would be associated with the order would be $3.20 per unit shipping cost. What is the break-even price per unit on this order?

2. The company has 1,000 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? Explain.

3. An outside manufacturer has offered to produce 60,000 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 75%. 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?