The Foundational 15

Cane Company manufactures two products called Alpha and Beta that sell for $155 and $115, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 110,000 units of each product. Its average cost per unit for each product at this level of activity are given below:

	Alpha	Beta
Direct materials	$ 24	$ 12
Direct labor	23	26
Variable manufacturing overhead	22	12
Traceable fixed manufacturing overhead	23	25
Variable selling expenses	19	15
Common fixed expenses	22	17
Total cost per unit	$ 133	$ 107

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.

Required:

1. What is the total amount of traceable fixed manufacturing overhead for each of the two products?

2. What is the companys total amount of common fixed expenses?

3. Assume that Cane expects to produce and sell 87,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 17,000 additional Alphas for a price of $108 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

4. Assume that Cane expects to produce and sell 97,000 Betas during the current year. One of Canes sales representatives has found a new customer who is willing to buy 3,000 additional Betas for a price of $46 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?