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5. Cane Company manufactures two products called Alpha and Beta that sell for $155 and $115, respectively. Each product uses only one type of raw

5.

Cane Company manufactures two products called Alpha and Beta that sell for $155 and $115, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 110,000 units of each product. Its unit costs for each product at this level of activity are given below:

Alpha

Beta

Direct materials

$

24

$

12

Direct labor

23

26

Variable manufacturing overhead

22

12

Traceable fixed manufacturing overhead

23

25

Variable selling expenses

19

15

Common fixed expenses

22

17

Total cost per unit

$

133

$

107

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 102,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 17,000 additional Alphas for a price of $108 per unit. If Cane accepts the customers offer, it will decrease Alpha sales to regular customers by 9,000 units.

a.

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

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