Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80 respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 units of each product. Its unit costs for each product at this level of activity are: Direct labor materials ... A: $30, B: $12 Direct labor ... A: 20, B: 15 Variable manu. over. ... A: 7, B: 5 Traceable fixed manu. over. ... A: 16, B: 18 Variable selling expenses ... A: 12, B: 8 Common fixed expenses ... A: 15, B: 10 Total cost per unit ... A: 100, B: 68 The company considers its traceable fixed manufacturing overhead costs to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on dollars.

Alpha Beta Direct Materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Varaible selling expenses Common Fixed Expenses Total cost per unit $30 $20 $7 $16 $12 $15 $100 Alpha 1 Common Fixed expenses per unit Level of activity in units Total common fixed expenses The company's total common fixed Xpen 3 Beta Traceable fixed overhead per unit Level of activity in units Total traceable fixed overhead 2 $12 $15 $5 $18 $8 $10 $68 Incremental revenue Incremental costs: Variable costs: Direct materials Direct labor Variable manufacturing overhead Variable selling expense Total variable cost Incremental net operating income units 4 Total Per Unit Incremental revenue Incremental costs: Variable costs: Direct materials Direct labor Variable manufacturing overhead Variable selling expense Total variable cost Incremental net operating income 5 Total Per Unit Incremental revenue Incremental costs: Variable costs: Direct materials Direct labor Variable manufacturing overhead Variable selling expense Total incremental variable cost Forgone sales to regular customers Incremental net operating income 6 Contribution margin gained or lost if the Beta product line is dropped Traceable fixed manufacturing overhead Increase or (decrease) in net operating income if Beta is dropped 7 Contribution margin gained or lost if the Beta product line is dropped Traceable fixed manufacturing overhead Increase or (decrease) in net operating income if Beta is dropped 8 Contribution margin gained or lost if the Beta product line is dropped Traceable fixed manufacturing overhead Contribution margin on additional Alpha sales Increase or (decrease) in net operating income if Beta is dropped Make Units Cost Buy Cost Units Buy Make 9 Cost of purchasing Direct Materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Total costs Difference in favor of making or buying Alphas 10 Cost of purchasing Direct Materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Total costs Difference in favor of making or buying Alphas