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Cane Company manufactures two products called Alpha and Beta that sell for $215 and $160, respectively. Each product uses only one type of raw
Cane Company manufactures two products called Alpha and Beta that sell for $215 and $160, respectively. Each product uses only one type of raw material that costs $7 per pound. The company has the capacity to annually produce 125,000 units of each product. Its unit costs for each product at this level of activity are given below: Direct materials Direct labour Alpha $ 42 35 Beta $ 21 28 Variable manufacturing overhead 23 21 Traceable fixed manufacturing overhead Variable selling expenses 31 34 28 24 Common fixed expenses Cost per unit 31 $190 26 $154 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. 6. Assume that Cane normally produces and sells 106,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
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