Assume that Cane expects to produce and sell 106,000 Alphas during the current y

ID: 2582228 • Letter: A

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Assume that Cane expects to produce and sell 106,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 21,000 additional Alphas for a price of $124 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 10,000 units.

Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.)

Assume that Cane normally produces and sells 71,000 Betas and 91,000 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 91,000 Alphas during the current year. A supplier has offered to manufacture and deliver 91,000 Alphas to Cane for a price of $124 per unit. If Cane buys 91,000 units from the supplier instead of making those units, how much will profits increase or decrease?

Assume that Cane expects to produce and sell 61,000 Alphas during the current year. A supplier has offered to manufacture and deliver 61,000 Alphas to Cane for a price of $124 per unit. If Cane buys 61,000 units from the supplier instead of making those units, how much will profits increase or decrease?

[The following information applies to the questions displayed below. Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117,000 units of each product. Its unit costs for each product at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Alpha Beta $ 40 S 15 30 16 29 19 21 30 18 26 23 26 Total cost per unit $163 $130 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.

Explanation / Answer

5. Incremental net operating income is -$367000

The traceable fixed expenses and common fixed expenses are irrelevant as they will not change with the alternatives.

8. Profit increases by $192000

The traceable fixed manufacturing overheads for Alpha are irrelevant as they will not change with a change in the number of Alphas since there is unutilized capacity.

9. Profit decreases by $234000

The selling price and variable selling expenses will not change with the alternatives and hence are irrelevant. Common fixed expenses are unavoidable and hence irrelevant as they too will not change with the alternatives.

10. Profit increases by $846000

Existing customers-decrease Alphas (10000 units) New customer-
Alphas (21000 units) Differential: Increase
(Decrease) in Profits Per unit $ Total $ Per unit $ Total $ Selling price 175 -1750000 124 2604000 854000 Less: Variable costs Direct materials 40 400000 40 840000 -440000 Direct labor 30 300000 30 630000 -330000 Manufacturing overhead 18 180000 18 378000 -198000 Selling expenses 23 230000 23 483000 -253000 Total variable costs 111 1110000 111 2331000 -1221000 Incremental net operating income 64 -640000 13 273000 -367000

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Assume that Candle Wax is traded in a perfectly competitive market in which the

Assume that Cane expects to produce and sell 111,000 Alphas during the current y

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Assume that Cane expects to produce and sell 106,000 Alphas during the current y

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