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.

5. Assume that Cane expects to produce and sell 99,000 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, it will decrease Alpha sales to regular customers by 7,000 units.

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

Incremental net operating income:

b. Based on your calculations above should the special order be accepted?

6. Assume that Cane normally produces and sells 94,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

Profit

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7. Assume that Cane normally produces and sells 44,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

Profti

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8. Assume that Cane normally produces and sells 64,000 Betas and 84,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 19,000 units. If Cane discontinues the

Profit

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9. Assume that Cane expects to produce and sell 84,000 Alphas during the current year. A supplier has offered to manufacture and deliver 84,000 Alphas to Cane for a price of $96 per unit. If Cane buys 84,000 units from the supplier instead of making those units, how much will profits increase or decrease?

Profit

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10. Assume that Cane expects to produce and sell 54,000 Alphas during the current year. A supplier has offered to manufacture and deliver 54,000 Alphas to Cane for a price of $96 per unit. If Cane buys 54,000 units from the supplier instead of making those units, how much will profits increase or decrease?

Profit

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