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Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product uses only one type of raw
Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Direct materials Variable manufacturing overhead Direct labor Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Alpha Beta $ 40 $ 15 30 30 18 16 26 29 23 19 26 21 $ 163 $ 130 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. 5. Assume that Cane expects to produce and sell 106,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 21,000 additional Alphas for a price of $124 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 10,000 units. a. What is the financial advantage (disadvantage) of accepting the new customer's order? b. Based on your calculations above should the special order be accepted? Complete this question by entering your answers in the tabs below. Reg SA Req 58 What is the financial advantage (disadvantage) of accepting the new customer's order? Complete this question by entering your answers in the tabs below. Req 5A Req 5B Based on your calculations in 5a should the special order be accepted? Yes ONO
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