Cane Company manufactures two products called Alpha and Beta that sell for $240
ID: 2398284 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $240 and $162, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 131,000 units of each product. Its unit costs for each product at this level of activity are given below:
Alpha
Beta
Direct materials
$
35
$
15
Direct labor
48
23
Variable manufacturing overhead
27
25
Traceable fixed manufacturing overhead
35
38
Variable selling expenses
32
28
Common fixed expenses
35
30
Total cost per unit
$
212
$
159
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.
1.
What is the total amount of traceable fixed manufacturing overhead for the Alpha product line and for the Beta product line?
2.
What is the company’s total amount of common fixed expenses?
3.
Assume that Cane expects to produce and sell 100,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 30,000 additional Alphas for a price of $160 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?
4.
Assume that Cane expects to produce and sell 110,000 Betas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 2,000 additional Betas for a price of $83 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?
5.
Assume that Cane expects to produce and sell 115,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 30,000 additional Alphas for a price of $160 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 14,000 units.
a.
Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.)
b.
Based on your calculations above should the special order be accepted?
Yes
No
Cane Company manufactures two products called Alpha and Beta that sell for $240 and $162, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 131,000 units of each product. Its unit costs for each product at this level of activity are given below:
Explanation / Answer
Solution 1:
Traceable Fixed manufacturing overhead - Alpha product line = 131000*$35 = $4,585,000
Traceable Fixed manufacturing overhead - Beta product line = 131000 * $38 = $4,978,000
Solution 2:
Company's total amount of common fixed expenses = (131000*$35) + (131000*$30) = $8,515,000
Solution 3:
Therefore profit will increase by $540,000 on accepting special order of alpha.
Solution 4:
Therefore profti will decrease by $16,000 on acceptance of special order of beta.
Solution 5:
As there is decrease in operating income on acceptance of special roder therefore special order should not accepted.
Computation of income from special order - Alpha Particulars Amount Revenue from special order (30000*$160) $4,800,000.00 Relevant cost: Direct material $1,050,000.00 Direct Labor $1,440,000.00 Variable mnaufacturing overhead $810,000.00 Variable selling expenses $960,000.00 Income from special order $540,000.00Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.