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Business, 30.03.2020 22:45 student679

Andretti Company has a single product called a Dak. The company normally produces and sells 87,000 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 $ 7.50
Direct labor 8.00
Variable manufacturing overhead 3.00
Fixed manufacturing overhead 9.00 ($783,000 total)
Variable selling expenses 2.70
Fixed selling expenses 4.00 ($348,000 total)
Total cost per unit $ 34.20

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 121,800 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 40% above the present 87,000 units each year if it were willing to increase the fixed selling expenses by $110,000. What is the financial advantage (disadvantage) of investing an additional $110,000 in fixed selling expenses?

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