Reference no: EM132603667
Andretti Company has a single product called a Dak. The company normally produces and sells 84,000 Daks each year at a selling price of $60 per unit.
The company's unit costs at this level of activity are given below:
Direct materials $ 6.50
Direct labor 8.00
Variable manufacturing overhead 2.30
Fixed manufacturing overhead 7.00 ($588,000 total)
Variable selling expenses 3.70
Fixed selling expenses 3.00 ($252,000 total)
Total cost per unit $ 30.50
A number of questions relating to the production and sale of Daks follow. Each question is independent.
Required:
Question 1: Assume that Andretti Company has sufficient capacity to produce 113,400 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 84,000 units each year if it were willing to increase the fixed selling expenses by $140,000. What is the financial advantage (disadvantage) of investing an additional $140,000 in fixed selling expenses?
Question 2: Would the additional investment be justified?
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