Question
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
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 produce 100,000 units annually of each product. Its unit costs for each product at this level of activity are as follows:
Alpha Beta
Direct Materials | $30 | $12 |
Direct Labor | 20 | 15 |
Variable Manufacturing | 7 | 5 |
Traceable Fixed Manufacturing | 16 | 18 |
Variable Selling Expense | 12 | 8 |
Common Fixed Expense | 15 | 10 |
Total cost per unit | $100 | $68 |
Assume that Cane expects to produce and sell 91,000 Alphas during the current year. One of the Cane's sales representatives has found a new customer that is willing to buy 10,000 additional. If Cane accepts the customer's offer, it will decrease Alpha sales to regular customers by 1,000 units. What is the minimum price per unit that Cane accept on this special order?
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