Question
[The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $165 and $130, respectively.
[The following information applies to the questions displayed below.] |
Cane Company manufactures two products called Alpha and Beta that sell for $165 and $130, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 113,000 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 | 29 | 25 | ||||||
Variable manufacturing overhead | 15 | 14 | ||||||
Traceable fixed manufacturing overhead | 25 | 27 | ||||||
Variable selling expenses | 21 | 17 | ||||||
Common fixed expenses | 24 | 19 | ||||||
Total cost per unit | $ | 154 | $ | 126 | ||||
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 |
Assume that Cane expects to produce and sell 99,000 Betas during the current year. One of Canes sales representatives has found a new customer that is willing to buy 2,000 additional Betas for a price of $48 per unit. If Cane accepts the customers offer, how much will its profits increase or decrease?
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