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 average cost per unit 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

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 97,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 12,000 additional Alphas for a price of $88 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 7,000 units.

a. What is the financial advantage (disadvantage) of accepting the new customers order?

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

6. Assume that Cane normally produces and sells 92,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

7. Assume that Cane normally produces and sells 42,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

8. Assume that Cane normally produces and sells 62,000 Betas and 82,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 17,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?