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 35% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two-month period. (Round number of units produced to the nearest whole number. Round your intermediate calculations and final answers to 2 decimal places. Any losses/reductions should be indicated by a minus sign.) 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 (d

Question Completion:

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 $64 per unit. The company's unit costs at this level of activity are given below:

Direct materials                                 $ 7.50

Direct labor                                           8.00

Variable manufacturing overhead      2.50

Fixed manufacturing overhead           8.00  ($664,000 total)

Variable selling expenses                     1.70

Fixed selling expenses                         4.50  ($373,500 total)

Total cost per unit                            $32.20

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

Andretti Company

a) Total contribution margin forgone if Andretti Company closes the plant for two months:

$153,210

b) Avoidable total fixed cost with the plant closure for two months:

$43,225

c) The financial disadvantage of closing the plant for two months:

 $198,518

Explanation:

a) Data and Calculations:

                                                            Unit      Normal       Strike      Closure

Sales units                                                        83,000      3,458

Sales Revenue at $64/unit              83,000  $5,312,000  $221,333   $0

Direct materials                                 $ 7.50      622,500      25,935

Direct labor                                           8.00      664,000      27,664

Variable manufacturing overhead      2.50      207,500        8,645

Total variable manufacturing expenses      $1,494,000   $62,244

Variable selling expenses                     1.70        141,100        5,879

Total variable costs                                       $1,635,100    $68,123

Contribution margin                                    $3,676,900   $153,210

Fixed manufacturing overhead           8.00  $664,000      27,664    38,733

Fixed selling expenses                        4.50  $373,500        15,561   49,800

Total fixed costs                                          $1,037,500    $43,225 $88,533

2 months Activity Levels:

Sales unit for 2 months strike = 25% of 83,000 = 20,750/12 * 2 = 3,458

Sales revenue = 20,750 * $64 = $1,328,000/12 * 2 = $221,333

Fixed manufacturing overhead = $664,000 * 35% = 232,400/12 * 2 = $38,733

Fixed selling expenses = 4.50  $373,500 * 80% = $298,800/12 * 2 = $49,800

Disadvantage of closing the plant for two months

Fixed cost under closure             $88,533

Loss of contribution under strike 153,210

Less Fixed cost under strike         43,225

Total loss under closure             $198,518

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know

answer; dividing net income by 1- t ;