Cane Company manufactures two products called Alpha and Beta that sell for $150 and $110, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 108,000 units of each product. Its unit costs for each product at this level of activity are given below:Alpha - Beta
Direct materials - $30 - $15
Direct labor - 26 - 22
Variable manufacturing overhead - 13 - 11
Traceable fixed manufacturing overhead - 22 - 24
Variable selling expenses - 18 - 14
Common fixed expenses - 21 - 16
Total cost per unit - $130 - $102
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.
Required:
Assume that Cane expects to produce and sell 96,000 Betas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 2,000 additional Betas for a price of $45 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?
Answers: 1
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Cane Company manufactures two products called Alpha and Beta that sell for $150 and $110, respective...
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