Question
Cane Company manufactures two products called Alpha and Beta that sell for $240 and $162, respectively. Each product uses only one type of raw material
Cane Company manufactures two products called Alpha and Beta that sell for $240 and $162, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 131,000 units of each product. Its unit costs for each product at this level of activity are given below:
ALPHA | BETA | |
Direct Materials | $35 | $15 |
Direct Labor | $48 | $23 |
Variable Manufacturing Overhead | $27 | $25 |
Traceable fixed manufacturing overhead | $35 | $38 |
Variable selling expenses | $32 | $38 |
Common fixed expenses | $35 | $30 |
Total cost per unit | $212 | $159 |
***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.
5. | Assume that Cane expects to produce and sell 115,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 30,000 additional Alphas for a price of $160 per unit. If Cane accepts the customers offer, it will decrease Alpha sales to regular customers by 14,000 units. |
a. | Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.) |
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