Cane Company manufactures two products called Alpha and Beta that sell for $155

Question

Cane Company manufactures two products called Alpha and Beta that sell for $155 and $115, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 110,000 units of each product. Its unit costs for each product at this level of activity are given below: Alpha Beta Direct materials $ 24 $ 12 Direct labor 23 26 Variable manufacturing overhead 22 12 Traceable fixed manufacturing overhead 23 25 Variable selling expenses 19 15 Common fixed expenses 22 17 Total cost per unit $ 133 $ 1073.

Assume that Cane expects to produce and sell 87,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 17,000 additional Alphas for a price of $108 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?

Explanation / Answer

Cane Company's profits before accepting the order = $ 155 X 87,000 - $ 133 X 87,000

Cane Company's profits before accepting the order = $ 1,914,000

Cane's company profits after accepting the order = [ $ 155 X 87,000 + $108 X 17,000 ] - [ $ 133 X 87,000 + $ 133 X 17,000 ]

Cane's company profits after accepting the order = $ 1,489,000

The company's profits decline aftter accepting the order , the profits decreases by = $ 425,000 .

Cane company should not accept the order.

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