1-a. Assume that Andretti Company has sufficient capacity to produce 120,150 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 89,000 units each year if it were willing to increase the fixed selling expenses by $140,000. What is the financial advantage (disadvantage) of investing an additional $140,000 in fixed selling expenses?

Question

Business

Randy Raymond

20 August, 18:15

1-a. Assume that Andretti Company has sufficient capacity to produce 120,150 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 89,000 units each year if it were willing to increase the fixed selling expenses by $140,000. What is the financial advantage (disadvantage) of investing an additional $140,000 in fixed selling expenses?

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Answers (1)

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Mathias Davila · Answer 1

The answer is given below;

Explanation:

The opportunity gain of investing in fixed selling expenses could be quantified by comparing with interest rates prevailing in the market.

if the net margin earned on producing extra quantity is greater than the return earned on placing funds in bank account, then it is financially viable to invest in fixed selling expenses and vice versa.