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Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. Each product uses only one type of raw material
Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 107000 units of each product. Its unit costs for each product at this level of activity are given Alpha Beta $30 10 Direct materials Direct labor Varlable manufacturing overheed Traceable foed manufacturing overhead Varlable selling expenses Common fixed expenses Total cost per unt 25 21 17 20 10 23 13 $125 S 91 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars. Assume that Cane expects to produce and sell 100,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 15,000 additional Alphas for a price of $100 per unit. If Cane accepts the customer's offer, it will decrease Alpha sales to regular customers by 8,000 units a.Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.) Incremental net operating income b. Based on your calculations above should the special order be accepted? Assume that Cane normally produces and sells 95,000 Betas per year. If Cane discontinues the Beta product line, hownuch will profits increase or decrease? Profit
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