Required information [The following information applies to the questions displayed below.] A company produces two products....

Transcribed Image Text:

Required information [The following information applies to the questions displayed below.] A company produces two products. Product 1 sells for $215 and Product 2 sells for $160. 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 average cost per unit for each product at this level of activity are given below: Product 1 Product 2 Direct materials $ 42 $ 21 Direct labor 35 28 Variable manufacturing overhead 23 21 Traceable fixed manufacturing overhead 31 34 Variable selling expenses 28 24 Common fixed expenses Total cost per unit 31 $190 26 $154 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Consider each of the following questions separately. 1. The company expects to produce and sell 96,000 units of Product 1 during the current year. One of the company's sales representatives has found a new customer who wants to buy 26,000 additional units of Product 1 for a price of $144 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order? Financial advantage Required information [The following information applies to the questions displayed below.] A company produces two products. Product 1 sells for $215 and Product 2 sells for $160. 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 average cost per unit for each product at this level of activity are given below: Product 1 Product 2 Direct materials $ 42 $ 21 Direct labor 35 28 Variable manufacturing overhead 23 21 Traceable fixed manufacturing overhead 31 34 Variable selling expenses 28 24 Common fixed expenses Total cost per unit 31 $190 26 $154 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Consider each of the following questions separately. 1. The company expects to produce and sell 96,000 units of Product 1 during the current year. One of the company's sales representatives has found a new customer who wants to buy 26,000 additional units of Product 1 for a price of $144 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order? Financial advantage