Andretti Company has a single product called a Dak. The company normally produces and sells 82,000 Daks each year at a selling price of $54 per unit. The company’s unit costs at this level of activity are given below:           Direct materials $ 8.50   Direct labor   9.00   Variable manufacturing overhead   2.90   Fixed manufacturing overhead   8.00 ($656,000 total) Variable selling expenses   4.70   Fixed selling expenses   3.50 ($287,000 total) Total cost per unit $ 36.60       A number of questions relating to the production and sale of Daks follow. Each question is independent.   Required: 1-a. Assume that Andretti Company has sufficient capacity to produce 106,600 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 30% above the present 82,000 units each year if it were willing to increase the fixed selling expenses by $130,000. What is the financial advantage (disadvantage) of investing an additional $130,000 in fixed selling expenses

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Andretti Company has a single product called a Dak. The company normally produces and sells 82,000 Daks each year at a selling price of $54 per unit. The company’s unit costs at this level of activity are given below:

 

       
Direct materials $ 8.50  
Direct labor   9.00  
Variable manufacturing overhead   2.90  
Fixed manufacturing overhead   8.00 ($656,000 total)
Variable selling expenses   4.70  
Fixed selling expenses   3.50 ($287,000 total)
Total cost per unit $ 36.60  
 

 

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

 

Required:

1-a. Assume that Andretti Company has sufficient capacity to produce 106,600 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 30% above the present 82,000 units each year if it were willing to increase the fixed selling expenses by $130,000. What is the financial advantage (disadvantage) of investing an additional $130,000 in fixed selling expenses?

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