Question
Cane Company manufactures two products called Alpha and Beta that sell for $140 and $100, respectively. Each product uses only one type of raw material
Cane Company manufactures two products called Alpha and Beta that sell for $140 and $100, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 106,000 units of each product. Its unit costs for each product at this level of activity are given below: |
Alpha | Beta | |||||||
Direct materials | $ | 32 | $ | 16 | ||||
Direct labor | 24 | 19 | ||||||
Variable manufacturing overhead | 10 | 9 | ||||||
Traceable fixed manufacturing overhead | 20 | 22 | ||||||
Variable selling expenses | 16 | 12 | ||||||
Common fixed expenses | 19 | 14 | ||||||
Total cost per unit | $ | 121 | $ | 92 | ||||
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. |
Required: | |
Assume that Cane expects to produce and sell 84,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 14,000 additional Alphas for a price of $96 per unit. If Cane accepts the customers offer, how much will its profits increase or decrease? (Input the amount as positive value.) |
Net operating income | (Click to select)Increases/Decreases | by | $ |
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