# Question & Answer: 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 \$…..

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 costs at this level of activity are given below: \$ 10.00 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses 4.50 2.30 5.00 (\$300,000 total) 1.20 3.50 (\$210,000 total) Total cost per unit \$ 26.50 A number of questions relating to the production and sale of Daks follow. Each question is independent.

Contribution Margin per unit = Selling Price per unit – Variable Cost per unit
Variable Cost per unit = \$10 + \$4.50 + \$2.30 + \$1.20
Variable Cost per unit = \$18

Contribution Margin per unit = \$32 – \$18 = \$14

 Increased Sales in units (60,000 * 25%) 15,000 Contribution Margin per unit \$14 Incremental Contribution Margin \$210,000 Less: Added Fixed Selling Expense (\$80,000) Incremental Net Operating Income 130,000

Yes, the added Fixed Selling Expenses are justified, as it is increasing Net Operating Income by \$130,000.