Business, 06.08.2021 17:50, 122333444469

Cane Company manufactures two products called Alpha and Beta that sell for $205 and $164, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 127,000 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 37 30
Variable manufacturing overhead 24 22
Traceable fixed manufacturing overhead 32 35
Variable selling expenses 29 25
Common fixed expenses 32 27

Total cost per unit $194 $163

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. Assume that Cane expects to produce and sell 97,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 12,000 additional Alphas for a price of $88 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 7,000 units.

Required:
If Cane accepts the customerâ€™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 $205 and $164, respective...