Cane Company manufactures two products called Alpha and Beta that sell for $225
ID: 2469379 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $225 and $175, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 130,000 units of each product. Its unit costs for each product at this level of activity are given below: Alpha Beta Direct materials $ 42 $ 24 Direct labor 42 32 Variable manufacturing overhead 26 24 Traceable fixed manufacturing overhead 34 37 Variable selling expenses 31 27 Common fixed expenses 34 29 Total cost per unit $ 209 $ 173 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.
Foundational 12-5
Assume that Cane expects to produce and sell 114,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 29,000 additional Alphas for a price of $156 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 13,000 units.
Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.)
What is incremental net operating income?
Assume that Cane normally produces and sells 109,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
Profit ________ by ________?
Assume that Cane normally produces and sells 59,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
Profit______by_______?
Assume that Cane expects to produce and sell 99,000 Alphas during the current year. A supplier has offered to manufacture and deliver 99,000 Alphas to Cane for a price of $156 per unit. If Cane buys 99,000 units from the supplier instead of making those units, how much will profits increase or decrease?
Profit______ by______?
Thank you
5.Assume that Cane expects to produce and sell 114,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 29,000 additional Alphas for a price of $156 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 13,000 units.
Explanation / Answer
Answer for question no.5.a.:
Answer for question no,5.b
As the deal is resulting in a loss of $657,000, the order should not be accepted.Hence, the answer is No.
Answer for question no.6a:
Profits will decrease by $2,602,000. This is the amount contributed by sale of Beta towards covering common fixed expenses, as these are unavoidable, these will anyway be incurred and will have to be paid.
Answer for question no.7:
Profits will increase by 798,000 as there is a negative contribution earned by the product. Beta is not able to cover the fixed manufacturing expenses incurred for the production of Beta.
Answer for question no.9:
Profits will increase by $2,935,000.
Particulars Alpha Beta Selling price $225.00 $175.00 Less: Variable costs Direct materials $42.00 $24.00 Direct labour $42.00 $32.00 Variable manufacturing overhead $26.00 $24.00 Variable selling expenses $31.00 $27.00 Total variable cost $141.00 $107.00 Contribution per unit $84.00 $68.00Related Questions
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