Question
Cane Company manufactures two products called Alpha and Beta that sell for $210 and $172, respectively. Each product uses only one type of raw material
Cane Company manufactures two products called Alpha and Beta that sell for $210 and $172, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 128,000 units of each product. Its unit costs for each product at this level of activity are given below: |
Alpha | Beta | |||||||
Direct materials | $ | 40 | $ | 24 | ||||
Direct labor | 38 | 34 | ||||||
Variable manufacturing overhead | 25 | 23 | ||||||
Traceable fixed manufacturing overhead | 33 | 36 | ||||||
Variable selling expenses | 30 | 26 | ||||||
Common fixed expenses | 33 | 28 | ||||||
Total cost per unit | $ | 199 | $ | 171 | ||||
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. |
Required: |
1. | What is the total amount of traceable fixed manufacturing overhead for the Alpha product line and for the Beta product line? |
2. | What is the companys total amount of common fixed expenses? |
3. | Assume that Cane expects to produce and sell 98,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 28,000 additional Alphas for a price of $152 per unit. If Cane accepts the customers offer, how much will its profits increase or decrease?
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started