Cane Company manufactures two products called Alpha and Beta that sell for $135

Question

Cane Company manufactures two products called Alpha and Beta that sell for $135 and $95, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 105,000 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 98,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 13,000 additional Alphas for a price of $92 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 6,000 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?

6. Assume that Cane normally produces and sells 93,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

7. Assume that Cane normally produces and sells 43,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

8. Assume that Cane normally produces and sells 63,000 Betas and 83,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 18,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?

9. Assume that Cane expects to produce and sell 83,000 Alphas during the current year. A supplier has offered to manufacture and deliver 83,000 Alphas to Cane for a price of $92 per unit. If Cane buys 83,000 units from the supplier instead of making those units, how much will profits increase or decrease?

10. Assume that Cane expects to produce and sell 53,000 Alphas during the current year. A supplier has offered to manufacture and deliver 53,000 Alphas to Cane for a price of $92 per unit. If Cane buys 53,000 units from the supplier instead of making those units, how much will profits increase or decrease?

11. How many pounds of raw material are needed to make one unit of Alpha and one unit of Beta?

12. What contribution margin per pound of raw material is earned by Alpha and Beta? (Round your answers to 2 decimal places.)

Cane Company manufactures two products called Alpha and Beta that sell for $135 and $95, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 105,000 units of each product. Its unit costs for each product at this level of activity are given below:

Explanation / Answer

Answer 1. Traceable Fixed MOH Alpha - $19 X 105000 Units                  1,995,000 Beta - $21 X 105000 Units                  2,205,000 Answer 2. Company's Total Common Fixed Expenses Alpha - $18 X 105000 Units                  1,890,000 Beta - $13 X 105000 Units                  1,365,000 Total Common Fixed Exp.                  3,255,000 Answer 3. Statement of Incremental Profit If order is Accepted of Alpha - 13000 Units Particulars Amount Increase in Sales (13000 Units X $92)                   1,196,000 Less: Increase in Costs Variable Cost Direct Material (13000 Units X $30)                    (390,000) Direct Labour (13000 Units X $23)                    (299,000) Variable MOH (13000 Units X $10)                    (130,000) Variable Selling Exp. (13000 Units X $15)                    (195,000)                 (1,014,000) Incremental Profit / (Loss)                       182,000 Profit will be increased by $182000, if order is Accepted. Note: We assumed that Variable Selling exp. Will be incurred on the Special order ia Accepted. Answer 4. Statement of Incremental Profit If order is Accepted of Beta - 4000 Units Particulars Amount Increase in Sales (4000 Units X $42)                       168,000 Less: Increase in Costs Variable Cost Direct Material (4000 Units X $18)                      (72,000) Direct Labour (4000 Units X $16)                      (64,000) Variable MOH (4000 Units X $8)                      (32,000) Variable Selling Exp. (4000 Units X $11)                      (44,000)                    (212,000) Incremental Profit / (Loss)                       (44,000) Profit will be decreased by $44000, if order is Accepted. Note: We assumed that Variable Selling exp. Will be incurred on the Special order ia Accepted. As per Chegg Guidelines, we can answer only one question at a time having four subparts only. For other subparts, please ask it again.

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