Question
Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product uses only one type of raw material
Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117,000 units of each product. Its unit costs for each product at this level of activity are given below: |
Alpha | Beta | |||||||
Direct materials | $ | 40 | $ | 15 | ||||
Direct labor | 30 | 30 | ||||||
Variable manufacturing overhead | 18 | 16 | ||||||
Traceable fixed manufacturing overhead | 26 | 29 | ||||||
Variable selling expenses | 23 | 19 | ||||||
Common fixed expenses | 26 | 21 | ||||||
Total cost per unit | $ | 163 | $ | 130 |
5. Assume that Cane expects to produce and sell 106,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 21,000 additional Alphas for a price of $124 per unit. If Cane accepts the customers offer, it will decrease Alpha sales to regular customers by 10,000 units. a. Calculate the incremental net operating income if the order is accepted |
8. Assume that Cane normally produces and sells 71,000 Betas and 91,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 11,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?
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