Question
Cane Company manufactures two products called Alpha and Beta that sell for $130 and $90, respectively. Each product uses only one type of raw material
Cane Company manufactures two products called Alpha and Beta that sell for $130 and $90, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 102,000 units of each product. Its unit costs for each product at this level of activity are given below: |
Alpha | Beta | ||||||||||
Direct materials | $ | 25 | $ | 10 | |||||||
Direct labor | 22 | 21 | |||||||||
Variable manufacturing overhead | 17 | 7 | |||||||||
Traceable fixed manufacturing overhead | 18 | 20 | |||||||||
Variable selling expenses | 14 | 10 | |||||||||
Common fixed expenses | 17 | 12 | |||||||||
Total cost per unit | $ | 113 | $ | 80 | |||||||
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4. Assume that Cane expects to produce and sell 92,000 Betas during the current year. One of Canes sales representatives has found a new customer that is willing to buy 2,000 additional Betas for a price of $41 per unit. If Cane accepts the customers offer, how much will its profits increase or decrease?
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