Cane Company manufactures two products called Alpha and Beta that sell for $130
ID: 2472819 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $130 and $90, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 102,000 units of each product. Its unit costs for each product at this level of activity are given below: Alpha Beta Direct Materials 25 10 Direct Labor 22 21 Variable Manufacturing overhead 17 7 Traceable fixed manufacturing overhead 18 20 Variable selling expense 14 10 Common fixed expense 17 12 Total cost per unit 113 80 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. 1. What is the company’s total amount of common fixed expenses? 2. Assume that Cane expects to produce and sell 97,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 12,000 additional Alphas for a price of $88 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 7,000 units. a. calculate the incremental net operating income if the order is accepted 3. Assume that Cane normally produces and sells 92,000 Betas per year. If Cane discontinues the Beta product line, how much will profit increase or decrease? By how much?
Explanation / Answer
1.
Company's total amount of fixed expenses is $ 2,958,000
2.
There will be loss of $336,000 if the order is accepted
3.
If beta will be discontinued than profit will decrease by $ 2,760,000
Alpha Beta Common fixed expense 17 12 Units 1,02,000 1,02,000 Common fixed expense 1734000 1224000Related Questions
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