ork Company manufactures two products called Alpha and Beta that sell for $240 a

Question

ork Company manufactures two products called Alpha and Beta that sell for $240 and $162, res ses only one type of raw material that costs $5 per pound. The company has the capacit nits of each product. Its average cost per unit for each product at this level of activity are given below pectively. Each product y to annualy produce 131,000 Alpha Beta 35 15 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 48 27 35 32 23 25 38 28 $212$159 The company considers its traceabie fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars 3. Assume that Cane expects to produce and sell 100000 Alphas during the current year. One of Cane's sales representatives has tound?new customer who is willing to buy 30,000 additional Alphas for o price of S160 per une what is the hancialanantage (disedvantoge) of accepting the new customers order? 15 of 15 Next

Explanation / Answer

Incremental Analysis: Incremental revenue (30000 units @ 160) 4,800,000 Less: Incremental ccost: material (30,000 units @35) 1,050,000 labour (30,000 units @48) 1440000 variable Manufacturing OH (30000 units @27) 810000 Variable Selling overheads (30000 units @32) 960000 Net Incremental income 540000 Net financial advantage of accepting the offer: $ 540,000 Note: Traceable and the untraceable fixed cost is irrelevant as it will not change with the increased production.

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