Question
The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $185 and $150, respectively.
The following information applies to the questions displayed below.] |
Cane Company manufactures two products called Alpha and Beta that sell for $185 and $150, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 119,000 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 | 33 | 28 | ||||||
Variable manufacturing overhead | 20 | 18 | ||||||
Traceable fixed manufacturing overhead | 28 | 31 | ||||||
Variable selling expenses | 25 | 21 | ||||||
Common fixed expenses | 28 | 23 | ||||||
Total cost per unit | $ | 174 | $ | 145 | ||||
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 108,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 23,000 additional Alphas for a price of $132 per unit. If Cane accepts the customers offer, it will decrease Alpha sales to regular customers by 12,000 units. |
a. | Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.) Inceremental net operating income?
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