Question

An outside manufacturer has offered to produce 83,000 Daks and ship them directly to Andretti’s customers. If Andretti Company accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. What is Andretti’s avoidable cost per unit that it should compare to the price quoted by the outside manufacturer? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

To determine Andretti's avoidable cost per unit, calculate the reduced fixed and variable costs due to outsourcing and divide by the number of units. The specific values for current costs are required for an exact calculation.

Step-by-step explanation:

To calculate Andretti's avoidable cost per unit for producing Daks, we must focus on the costs saved if production is outsourced. This includes the 30% reduction in fixed costs and the two-thirds reduction in variable selling expenses currently being incurred when Andretti manufactures the products.

Since the student did not provide specific figures for the current fixed and variable costs of producing Daks, a generalized equation for calculating the avoidable cost per unit (ACPU) will be:

ACPU = (Current Fixed Costs − (Current Fixed Costs × 0.30)) + (Current Variable Selling Expenses − (Current Variable Selling Expenses × 0.66))

This equation would then be divided by the number of units (83,000 Daks) to find the avoidable cost per unit. However, for a precise answer, actual numbers for the company's fixed and variable costs are necessary. Comparing the avoidable cost per unit to the quote from the outside manufacturer will reveal the more cost-effective option.

Answer 2

Andretti’s avoidable cost per unit that it should compare to the price quoted by the outside manufacturer is 24.37

Step-by-step explanation:

total cost per unit avoided = Variable manfuacturing costs + fixed manufacturing overhead cost + variable selling expense

= 21 + 6*30% + 4.7*1/3

= 21 + 1.8 + 1.57

= 24.37

Therefore, Andretti’s avoidable cost per unit that it should compare to the price quoted by the outside manufacturer is 24.37