Cane Company manufactures two products called Alpha and Beta that sell for $180

Question

Cane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 118,000 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.

5. Assume that Cane expects to produce and sell 107,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 22,000 additional Alphas for a price of $128 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 11,000 units.

Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.)

Incremental net operating income=

Based on your calculations above should the special order be accepted?

6. Assume that Cane normally produces and sells 102,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

Profit _____ by _____

7. Assume that Cane normally produces and sells 52,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

Profit _____ by _____

8. Assume that Cane normally produces and sells 72,000 Betas and 92,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 12,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?

Profit _____ by _____

9. Assume that Cane expects to produce and sell 92,000 Alphas during the current year. A supplier has offered to manufacture and deliver 92,000 Alphas to Cane for a price of $128 per unit. If Cane buys 92,000 units from the supplier instead of making those units, how much will profits increase or decrease?

Profit _____ by _____

10. Assume that Cane expects to produce and sell 62,000 Alphas during the current year. A supplier has offered to manufacture and deliver 62,000 Alphas to Cane for a price of $128 per unit. If Cane buys 62,000 units from the supplier instead of making those units, how much will profits increase or decrease?

Profit _____ by _____

[The following information applies to the questions displayed below.]

Explanation / Answer

Solution 5a:

incremental net operating income if the order is accepted = -$385,000

Solution 5b:

As there is incremental loss on accepting special order therefore special order should not be accepted.

Solution 6:

If company discontinue beta line then profit will decrease by $2,274,000

Solution 7:

If company discontinue beta line then profit will increase by $576,000

Solution 8:

If a discontinues beta line then profit will increase by $264,000.

Note: I have answered first 4 parts of the question as per chegg policy, kindly post separate question for answer of remaining parts.

Differential Analysis - Regular sale alpha (alt 1)or accept special alpha order (Alt2) Particulars Regular Sale (107000 Units)
(Alt 1) Accept special alpha order (Regular Sale - 96000 Units, Special Order - 22000 Units) Differential effect on income (Alt 2) Details Amount Details Amount Revenue 107000*$180 $19,260,000.00 (96000*$180) + (22000*128) $20,096,000.00 $836,000.00 Costs: Direct Material 107000*$36 $3,852,000.00 118000*$36 $4,248,000.00 $396,000.00 Direct Labor 107000*$32 $3,424,000.00 118000*$32 $3,776,000.00 $352,000.00 Variable manufacturing Overhead 107000*$19 $2,033,000.00 118000*$19 $2,242,000.00 $209,000.00 Variable Selling Expenses 107000*$24 $2,568,000.00 118000*$24 $2,832,000.00 $264,000.00 Traceable Fixed manufacturing overhead 118000*$27 $3,186,000.00 118000*$27 $3,186,000.00 $0.00 Common fixed expenses 118000*$27 $3,186,000.00 118000*$27 $3,186,000.00 $0.00 Income / (Loss) $1,011,000.00 $626,000.00 -$385,000.00

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