Cane Company manufactures two products called Alpha and Betathat sell for $240 and $162, respectively. Each product uses onlyone type of raw material that costs $5 per pound. The company hasthe capacity to annually produce 131,000 units of each product. Itsunit costs for each product at this level of activity are givenbelow:
ALPHA BETA Direct Materials $35 $15 Direct Labor $48 $23 Variable Manufacturing Overhead $27 $25 Traceable fixed manufacturing overhead $35 $38 Variable selling expenses $32 $38 Common fixed expenses $35 $30 Total cost per unit $212 $159
***The company considers its traceable fixed manufacturingoverhead to be avoidable, whereas its common fixed expenses aredeemed unavoidable and have been allocated to products based onsales dollars.
10. Assume that Cane expects to produce and sell 75,000 Alphasduring the current year. A supplier has offered to manufacture anddeliver 75,000 Alphas to Cane for a price of $160 per unit. If Canebuys 75,000 units from the supplier instead of making those units,how much will profits increase or decrease?
Cane Company manufactures two products called Alpha and Betathat sell for $240 and $162, respectively. Each product uses onlyone type of raw material that costs $5 per pound. The company hasthe capacity to annually produce 131,000 units of each product. Itsunit costs for each product at this level of activity are givenbelow:
| ALPHA | BETA | |
| Direct Materials | $35 | $15 |
| Direct Labor | $48 | $23 |
| Variable Manufacturing Overhead | $27 | $25 |
| Traceable fixed manufacturing overhead | $35 | $38 |
| Variable selling expenses | $32 | $38 |
| Common fixed expenses | $35 | $30 |
| Total cost per unit | $212 | $159 |
***The company considers its traceable fixed manufacturingoverhead to be avoidable, whereas its common fixed expenses aredeemed unavoidable and have been allocated to products based onsales dollars.
10. Assume that Cane expects to produce and sell 75,000 Alphasduring the current year. A supplier has offered to manufacture anddeliver 75,000 Alphas to Cane for a price of $160 per unit. If Canebuys 75,000 units from the supplier instead of making those units,how much will profits increase or decrease?
Related questions
Cane Company manufactures two products called Alpha and Betathat sell for $240 and $162, respectively. Each product uses onlyone type of raw material that costs $5 per pound. The company hasthe capacity to annually produce 131,000 units of each product. Itsunit costs for each product at this level of activity are givenbelow:
| ALPHA | BETA | |
| Direct Materials | $35 | $15 |
| Direct Labor | $48 | $23 |
| Variable Manufacturing Overhead | $27 | $25 |
| Traceable fixed manufacturing overhead | $35 | $38 |
| Variable selling expenses | $32 | $38 |
| Common fixed expenses | $35 | $30 |
| Total cost per unit | $212 | $159 |
***The company considers its traceable fixed manufacturingoverhead to be avoidable, whereas its common fixed expenses aredeemed unavoidable and have been allocated to products based onsales dollars.
| 5. | Assume that Cane expects to produce and sell 115,000 Alphasduring the current year. One of Cane's sales representatives hasfound a new customer that is willing to buy 30,000 additionalAlphas for a price of $160 per unit. If Cane accepts the customerâsoffer, it will decrease Alpha sales to regular customers by 14,000units. |
| a. | Calculate the incremental net operating income if the order isaccepted? (Loss amount should be indicated with a minussign.) |
Cane Company manufactures two products called Alpha and Betathat sell for $120 and $80, respectively. Each product uses onlyone type of raw material that costs $6 per pound. The company hasthe capacity to annually produce 100,000 units of each product. Itsunit costs for each product at this level of activity are givenbelow: |
Alpha | Beta | |||||||
Direct materials | $ | 30 | $ | 12 | ||||
Direct labor | 20 | 15 | ||||||
Variable manufacturing overhead | 7 | 5 | ||||||
Traceable fixed manufacturing overhead | 16 | 18 | ||||||
Variable selling expenses | 12 | 8 | ||||||
Common fixed expenses | 15 | 10 | ||||||
Total cost per unit | $ | 100 | $ | 68 | ||||
The company considers its traceable fixed manufacturing overheadto be avoidable, whereas its common fixed expenses are deemedunavoidable and have been allocated to products based on salesdollars. |
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Cane Company manufactures two products called Alpha and Betathat sell for $215 and $160, respectively. Each product uses onlyone type of raw material that costs $7 per pound. The company hasthe capacity to annually produce 125,000 units of each product. Itsunit costs for each product at this level of activity are givenbelow:
ALPHA BETA
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 | 31 | 26 | ||||||
| Total cost per unit | $ | 190 | $ | 154 |
The company considers its traceable fixed manufacturing overheadto be avoidable, whereas its common fixed expenses are deemedunavoidable and have been allocated to products based on salesdollars.
1. Assume that Cane normally produces and sells 76,000 Betas and96,000 Alphas per year. If Cane discontinues the Beta product line,its sales representatives could increase sales of Alpha by 16,000units. If Cane discontinues the Beta product line, how much wouldprofits increase or decrease?
Profit ___ Increase/decrease? by ______?
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