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 cost 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 Cost per unit $26.50
1) 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 25% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by 80,000. Would the increased fixed selling expenses be justified?
2) Assume again that andretti company has sufficient capacity to produce 90,000 Daks each year. A customer is a foreign market wants to purchase 20,000 Daks. Import duties on the Daks would be $1.70 per unit, and cost for permits and licenses would be $9,000. The only selling costs that would be associated with the order would be $3.20 per unit shipping cost. Compute the per unit break-even price on this order.
3) 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 unit cost figure is relevant for setting a minimum selling price? Explain.
.