Required information (The following information applies to the questions display

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Required information (The following information applies to the questions displayed below.) Cane Company manufactures two products called Alpha and Beta that sell for $190 and $155, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 122,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha $ 40 Beta $ 24 28 34 19 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 21 29 26 29 $179 32 22 24 $149 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. 5. Assume that Cane expects to produce and sell 109,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 24,000 additional Alphas for a price of $136 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 11,000 units. a. What is the financial advantage (disadvantage) of accepting the new customer's order? b. Based on your calculations above should the special order be accepted?

Explanation / Answer

Incremental revenue 3264000 =24000*136 Incremental costs: Direct materials 960000 =24000*40 Direct labor 816000 =24000*34 Variable manufacturing overhead 504000 =24000*21 Variable selling expenses 624000 =24000*26 Loss in contribution margin 759000 =11000*(190-40-34-21-26) Total Incremental costs 3663000 Financial advantage(disadvantage) -399000 Financial (disadvantage) = 399000

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