Cane Company manufactures two products called Alpha and Beta that sell for $125 and $85, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 101,000 units of each product. Its average cost per unit for each product at this level of activity are given below:

	Alpha	Beta
Direct materials	$ 30	$ 12
Direct labor	21	20
Variable manufacturing overhead	8	6
Traceable fixed manufacturing overhead	17	19
Variable selling expenses	13	9
Common fixed expenses	16	11
Total cost per unit	$ 105	$ 77

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 96,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 11,000 additional Alphas for a price of $84 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 6,000 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?

Complete this question by entering your answers in the tabs below.

• Req 5A
• Req 5B

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