Cane Company manufactures two products called Alpha and Beta that sell for $170

Question

Cane Company manufactures two products called Alpha and Beta that sell for $170 and $130, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 116,000 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 90,000 Alphas during the current year. One of Cane's
sales representatives has found a new customer that is willing to buy 20,000 additional Alphas for a price of $120 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease? (Input the amount as positive value.)

Cane Company manufactures two products called Alpha and Beta that sell for $170 and $130, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 116,000 units of each product. Its unit costs for each product at this level of activity are given below:

Explanation / Answer

Ans-

Calculation of Profit under (116000 units)

Calculation of profit under if Cane accept customer offer

Net operating profit decrase by (1972000-1370000)$602000

Alpha($) Beta($) Sales/units 170 130 Total Cost/unit 153 124 Profit/unit 17 6 No of units 116000 116000 Total profit 1972000 696000

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