Garrison Managerial Accounting pg. 560 #3. Do traceable fixed manufacturing over

Question

Garrison Managerial Accounting pg. 560 #3. Do traceable fixed manufacturing overhead and common fixed costs have to be used in answer to this question? Please answer problem for me. I submitted this problem at 9:10 am and have not received an answer.  

3. Assume that Cane expeects to produce and sell 80,000 alphas during the current year. One of Cane's sales representatives had found a new customer that is willing to buy 10,000 additional alphas for a price of $80 per unit. If Cane accepts the customer's offer, how much willits profits increase or decrease?

Cane Co. manufactures 2 products called aplha and beta that sell for $120 and $80 respectively. Each product uses only one type of raw meterial that costs $6 per pound. The company had the capacity to annually produce 100,000 units of each product.

Alpha:

Direct materials $30, Direct Labor $20, Variable Manuf OH $7, Traceable Fixed manuf OH $16, Variable Selling and Admin, $12, common fixed expenses $15, Total $100. Company considers traceable fixed manuf overhead to be avoidable and common fixed are unavoidable and allocated based on sales $.

Explanation / Answer

Relevant Cost to be considered for evaluating the additional order:

Direct Material    $30
Direct Labour      $20
Variable mfr o/h   $7
Var. sellin & Admin $12
Total Relevant Cost = $69
Selling Cost for additional order = $80
Hence the increase in profit due to additional order = 10000*(80-69) = $110000
Here the Fixed are sunk cost which are not to be considered because they will incur wheather or not the order is accepted. Hence not to be considered.

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.