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Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117.000 units of each product. Its average cost per unit for each product at this level of activity are given below Alpha Beta Direct materials $ 40 $ 15 Direct labor 30 30 Variable manufacturing overhead 18 16 Traceable fixed manufacturing overhead 26 29 Variable selling expenses 23 19 Common fixed expenses 26 21 Total cost per unit $ 163 $ 130 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. 5. Assume that Cane expects to produce and sell 106,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 21,000 additional Alphas for a price of $124 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 10,000 units. a. What is the financial advantage (disadvantage) of accepting the new customer's order? b. Based on your calculations above should the special order be accepted? Complete this question by entering your answers in the tabs below. Reg SA Reg 58 What is the financial advantage (disadvantage) of accepting the new customer's order? (The following information Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 40 $ 15 Direct labor 30 30 Variable manufacturing overhead 18 16 Traceable fixed manufacturing overhead 29 Variable selling expenses 23 19 Common fixed expenses 21 Total cost per unit $ 163 $ 130 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. 26 26 6. Assume that Cane normally produces and sells 101.000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? Financial (disadvantage) Financial advantage Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 40 $ 15 Direct labor 30 30 Variable manufacturing overhead 18 16 Traceable fixed manufacturing overhead 26 29 Variable selling expenses 23 19 Common fixed expenses 26 21 Total cost per unit $ 163 $ 130 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. 7. Assume that Cane normally produces and sells 51000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? 115 Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively, Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to anoually produce 117,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Alpha $40 30 18 26 23 26 $ 163 Beta $ 15 30 16 29 19 21 $ 130 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. B. Assume that Cane normally produces and sells 71000 Betas and 91,000 Alphas per year. If Cone discontinues the Beta product line, its sales representatives could increase sales of Alpha by 11,000 units. What is the financial advehtage (disadvantage) of discontinuing the Beta product line? 1 Alpha Beta 2 Direct materials $40 $15 3 Direct labor $30 $ 30 4 Variable manufacturing overhead $18 $ 16 5 Traceable fixed manufacturing overhead $ 26 $ 29 6 Variable selling expenses $ 23 $ 19 7 common fixed expenses S 26 S 21 8 Total cost per unit $163 $130 9 10 Extra Information: 11 Selling price $175 $135 per unit 12 Raw material per pound $5 $5 per pound 13 Production Capacity in units (annually) $117,000 $117,000 units 14 15 16 What is the total amount of traceable fixed manufacturing overhead for each of the two products? 17 Alpha Beta 18 Traceable fixed manufacturing overhead per units 26 S 29 19 Annual capacity $117,000 $117,000 20 Total overhead amount $3,042,000 $3,393,000 21 22 23 What is the company's total amount of common fixed expenses? 24 Alpha Beta Total 25 Cost per unit 26 21 26 Units produced $117,000 $117,000 27 Total common fixed expenses $3,042,000 $2,457,000 $5,499,000 28 29 30 What is the financial advantage (disadvantage) of accepting the new customer's order? 31 More Information: Alpha 32 Produce and Sell 91,000 33 Additional alphas being bought 21,000 34 Selling prices per unit $124 35 36 Direct labor $30 37 Direct materials $40 38 Variable manufacturing overhead $18 39 Variable selling expenses $ 23 40 Total relevent cost $111 41 Financial advantage per unit $13 SE + $ 45 What is the financial advantage (disadvantage) of accepting the new customer's order? 46 More Information: Beta 47 Produce and Sell 101,000 48 Additional alphas being bought 3,000 49 Selling prices per unit $59 50 51 Direct labor 30 52 Direct materials $15 53 Annual capacity $ 16 54 $ 19 55 Total relevent cost $ 80 56 Financial disavantage per unit 57 Total financial disadvantage ($21) ($63,000) 58 59 60 61 62 63

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