Cane Company manufactures two products called Alpha and Beta that sell for $165
ID: 2426642 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $165 and $130, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 113,000 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 normally produces and sells 49,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
[The following information applies to the questions displayed below.]Explanation / Answer
Decrease in profit = 49000 x (130 - 107)
= 1127000
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