Cane Company manufactures two products called Alpha and Beta that sell for $210
ID: 2593007 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $210 and $172, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 128,000 units of each product. Its unit costs for each product at this level of activity are given below:
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.
Assume that Cane expects to produce and sell 113,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 28,000 additional Alphas for a price of $152 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 13,000 units.
Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.)
Based on your calculations above should the special order be accepted?
Assume that Cane normally produces and sells 108,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
Assume that Cane normally produces and sells 58,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
Assume that Cane normally produces and sells 78,000 Betas and 98,000 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?
Cane Company manufactures two products called Alpha and Beta that sell for $210 and $172, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 128,000 units of each product. Its unit costs for each product at this level of activity are given below:
Explanation / Answer
Solution - 5a:
b) As there incremental loss of $469,000, therefore special order should not be accepted.
Solution 6:
As there is decrease in profit by $2,412,000, therefore we should not discontnue beta product at this level.
Solution - 7:
As there is increase in profit by $838,000, therefore company should discontinue beta at this level.
Solution 8:
If cane discontinues the beta product line than its profit will increase by $385,000.
Differential Analysis - Regular sale alpha (alt 1)or accept special alpha order (Alt2) Particulars Regular Sale (113000 Units)(Alt 1) Accept special alpha order (Regular Sale - 100000 Units, Special Order - 28000 Units) Differential effect on income (Alt 2) Details Amount Details Amount Revenue 113000*$210 $23,730,000.00 (100000*$210) + (28000*152) $25,256,000.00 $1,526,000.00 Costs: Direct Material 113000*$40 $4,520,000.00 128000*$40 $5,120,000.00 $600,000.00 Direct Labor 113000*$38 $4,294,000.00 128000*$38 $4,864,000.00 $570,000.00 Variable manufacturing Overhead 113000*$25 $2,825,000.00 128000*$25 $3,200,000.00 $375,000.00 Variable Selling Expenses 113000*$30 $3,390,000.00 128000*$30 $3,840,000.00 $450,000.00 Traceable Fixed manufacturing overhead 128000*$33 $4,224,000.00 128000*$33 $4,224,000.00 $0.00 Common fixed expenses 128000*$33 $4,224,000.00 128000*$33 $4,224,000.00 $0.00 Income / (Loss) $253,000.00 -$216,000.00 -$469,000.00
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