Cane Company manufactures two products called Alpha and Beta that sell for $185
ID: 2523445 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $185 and $120, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 112,000 units of each product. Its unit costs for each product at this level of activity are given below: Alpha Beta Direct materials $ 30 $ 10 Direct labor 22 29 Variable manufacturing overhead 20 13 Traceable fixed manufacturing overhead 24 26 Variable selling expenses 20 16 Common fixed expenses 23 18 Total cost per unit $ 139 $ 112 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.
5. Assume that Cane expects to produce and sell 103,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 18,000 additional Alphas for a price of $112 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 9,000 units.
ANSWER: Net operating income__________ by ___________
a. Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.) .
ANSWER: incremental net operating income __________________
B. Based on your calculations above should the special order be accepted? Yes No
6. Assume that Cane normally produces and sells 98,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
ANSWER: Profit __________ by ___________
7. Assume that Cane normally produces and sells 48,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
ANSWER: Profit __________ by ___________
8. Assume that Cane normally produces and sells 68,000 Betas and 88,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 12,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?
ANSWER: Profit __________ by ___________
9. Assume that Cane expects to produce and sell 88,000 Alphas during the current year. A supplier has offered to manufacture and deliver 88,000 Alphas to Cane for a price of $112 per unit. If Cane buys 88,000 units from the supplier instead of making those units, how much will profits increase or decrease?
ANSWER: Profit __________ by ___________
10. Assume that Cane expects to produce and sell 58,000 Alphas during the current year. A supplier has offered to manufacture and deliver 58,000 Alphas to Cane for a price of $112 per unit. If Cane buys 58,000 units from the supplier instead of making those units, how much will profits increase or decrease?
ANSWER: Profit __________ by ___________
Explanation / Answer
Cane Company Basic Calculations Units Alpha beta Amount Per unit Amount Per unit Variable costing Income statement Revenue 185 Variable cost Direct Materials 30 10 Direct Labor 22 29 Variable overhead 20 13 Variable selling expenses 20 16 Total variable costs 92 68 Contribution margin 93 Fixed costs Traceble fixed manufacturing overhead 24 26 Common fixed costs 23 18 Total fixed costs Operating Income Requirement 5 Additional contribution from sale of 18000 units to new customer 360000 =18000*(112-92) Opportunity cost of not earning contribution on 9000 units 837000 =9000*(185-92) Incremental Profit -477000 Thus, Net operating Income decrease by 477000 Requirement 5a) Incremental net operating Income -477000 Requirement 5B) Based on above calculations, Special order should not be accepted Requirement 6 Units 98000 beta Amount Per unit Variable costing Income statement Revenue 11760000 120 Variable cost Direct Materials 980000 10 Direct Labor 2842000 29 Variable overhead 1274000 13 Variable selling expenses 1568000 16 Total variable costs 6664000 68 Contribution margin 5096000 52 Fixed costs Traceble fixed manufacturing overhead 2912000 26 Common fixed costs Total fixed costs 2912000 Operating Income 2184000 If Can discontinue the Beta product line, Profit will decrease by 2184000 Requirement 7 Units 48000 beta Amount Per unit Variable costing Income statement Revenue 5760000 120 Variable cost Direct Materials 480000 10 Direct Labor 1392000 29 Variable overhead 624000 13 Variable selling expenses 768000 16 Total variable costs 3264000 68 Contribution margin 2496000 52 Fixed costs Traceble fixed manufacturing overhead 2912000 26 Common fixed costs Total fixed costs 2912000 Operating Income -416000 If Can discontinue the Beta product line, Profit will increase by 416000 Requirement 8 Total relevent revenue from producing and selling 68000 betas Units 68000 beta Amount Per unit Variable costing Income statement 8160000 120 Revenue Variable cost Direct Materials 680000 10 Direct Labor 1972000 29 Variable overhead 884000 13 Variable selling expenses 1088000 16 Total variable costs 4624000 68 Contribution margin 3536000 52 Fixed costs Traceble fixed manufacturing overhead 2912000 26 Common fixed costs Total fixed costs 2912000 Operating Income/Relevent contribution of beta to be lost if discontinued 624000 Analysis of decision for requirement 8 Additional revenue from selling additional units of Alpha 1116000 =12000*93 Opportunity cost of not earning contribution on 68000 Beta units 624000 Net Additional contribution 492000 Profit will increase by 492000 Requirement 9 Units 88000 Alpha Amount Per unit Variable costing Income statement Revenue 16280000 185 Variable cost Direct Materials 2640000 30 Direct Labor 1936000 22 Variable overhead 1760000 20 Variable selling expenses 1760000 20 Total variable costs 8096000 92 Fixed costs Traceble fixed manufacturing overhead 2688000 24 Common fixed costs Total fixed costs 2688000 Total cost(Variable+Fixed) 10784000 Total cost if bought from supplier 11616000 Difference/Saving in costs -832000 Profit will decrease by 832000 Requirement 10 Units 58000 Alpha Amount Per unit Variable costing Income statement Revenue 10730000 185 Variable cost Direct Materials 1740000 30 Direct Labor 1276000 22 Variable overhead 1160000 20 Variable selling expenses 1160000 20 Total variable costs 5336000 92 Fixed costs Traceble fixed manufacturing overhead 2688000 24 Common fixed costs Total fixed costs 2688000 Total cost(Variable+Fixed) 8024000 Total cost if bought from supplier 7656000 Difference/Saving in costs 368000 Profit will increase by 368000
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