Cane Company manufactures two products called Alpha and Beta that sell for $150

Question

Cane Company manufactures two products called Alpha and Beta that sell for $150 and $110, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 108,000 units of each product. Its unit costs for each product at this level of activity are given below:

The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars.

Assume that Cane expects to produce and sell 86,000 Alphas during the current year. One of Cane's
sales representatives has found a new customer that is willing to buy 16,000 additional Alphas for a price of $104 per unit. If Cane accepts the customer

Cane Company manufactures two products called Alpha and Beta that sell for $150 and $110, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 108,000 units of each product. Its unit costs for each product at this level of activity are given below:

Explanation / Answer

1) Net operating income will increase by: = (104-87)*16000 = $272,000

2)Net operating income decreases by: = 29000(156-141) - 1092000 = $657,000

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