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

ID: 2485180 • Letter: C

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

Direct labor

Variable manufacturing overhead

Traceable fixed manufacturing overhead

Variable selling expenses

Common fixed expenses

Total cost per unit

133

107

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.

3. 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?

4. Assume that Cane expects to produce and sell 97,000 Betas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 3,000 additional Betas for a price of $46 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?

5. Assume that Cane expects to produce and sell 102,000 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, it will decrease Alpha sales to regular customers by 9,000 units. Calculate the incremental net operating income if the order is accepted?

6. Assume that Cane normally produces and sells 97,000 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 67,000 Betas and 87,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 11,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?

9. Assume that Cane expects to produce and sell 87,000 Alphas during the current year. A supplier has offered to manufacture and deliver 87,000 Alphas to Cane for a price of $108 per unit. If Cane buys 87,000 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 57,000 Alphas during the current year. A supplier has offered to manufacture and deliver 57,000 Alphas to Cane for a price of $108 per unit. If Cane buys 57,000 units from the supplier instead of making those units, how much will profits increase or decrease?

Explanation / Answer

Answer: Calculation of Profit per unit (Amount in $) Particulars Alpha Beta Selling Price 155 115 Total cost per unit 110 82 Direct materials 24 12 Direct labor 23 26 Variable manufacturing overhead 22 12 Traceable fixed manufacturing overhead 0 0 Variable selling expenses 19 15 Common fixed expenses 22 17 Profit per unit 45 33 3. 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? Answer: Present Profit per unit = 45 Expected Sale units= 87000 Profit= 45*87000= 39,15,000 Profit per unit if Sale price is $155= 45 Expected Sale units to new customer= 17000 Profit= 45*17000= 7,65,000 Loss per unit if Sale price is $108= 108-110= (2) Expected Sale units= 17000 Loss= 2*17000= (34,000) 4. Assume that Cane expects to produce and sell 97,000 Betas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 3,000 additional Betas for a price of $46 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease? Answer: Present Profit per unit = 33 Expected Sale units= 97000 Profit= 33*97000= 32,01,000 Profit per unit if Sale price is $115= 33 Expected Sale units to new customer= 3000 Profit= 33*3000= 99,000 Loss per unit if Sale price is $46= 46-82= (36) Expected Sale units= 3000 Loss= 36*3000= (1,08,000) 5. Assume that Cane expects to produce and sell 102,000 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, it will decrease Alpha sales to regular customers by 9,000 units. Calculate the incremental net operating income if the order is accepted? Answer: Present Profit per unit = 45 Expected Sale units= 102000 Profit= 45*102000= 45,90,000 Loss per unit if Sale price is $108= 108-110= (2) Expected Sale units= 17000 Loss= 2*17000= (34,000) Total Profit= 4590000+(34000)=4556000 Sales expected= 102000+17000-9000=110000 Income on Sales of 93000 (102000-9000) units= 45*93000= 4185000 Loss on sale of 17000 units= 2*17000= (34,000) Net operating income= 4185000+(34000)= 4151000 6. Assume that Cane normally produces and sells 97,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease? Answer: Profit per unit= 33 Selling units= 97000 Profit= 33*97000= 3201000

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

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