Question
In: Accounting
Cane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively....
Cane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 118,000 units of each product. Its unit costs for each product at this level of activity are given below:
| Alpha | Beta | |||||||
| Direct materials | $ | 36 | $ | 24 | ||||
| Direct labor | 32 | 27 | ||||||
| Variable manufacturing overhead | 19 | 17 | ||||||
| Traceable fixed manufacturing overhead | 27 | 30 | ||||||
| Variable selling expenses | 24 | 20 | ||||||
| Common fixed expenses | 27 | 22 | ||||||
| Total cost per unit | $ | 165 | $ | 140 | ||||
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.
3. Assume that Cane expects to produce and sell 92,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 22,000 additional Alphas for a price of $128 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?
5. Assume that Cane expects to produce and sell 107,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 22,000 additional Alphas for a price of $128 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 11,000 units.
a. Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.)
b. Based on your calculations above should the special order be accepted?
| Yes | |
| No |
6. Assume that Cane normally produces and sells 102,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
7. Assume that Cane normally produces and sells 52,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
8. Assume that Cane normally produces and sells 72,000 Betas and 92,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 12,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?
Solutions
Expert Solution
| Alpha | Beta | ||
| Traceable Fixed Manufacturing Overhead per unit | $ 27 | $ 30 | |
| Multiply: Annual Capacity in units | 118,000 | 118,000 | |
| Traceable Fixed Manufacturing Overhead | $ 3,186,000 | $ 3,540,000 |
| Common Fixed cost per unit | Multiply: Annual Capacity | Common Fixed cost | |
| Alpha | $ 27 | 118,000 | $ 3,186,000 |
| Beta | $ 22 | 118,000 | $ 2,596,000 |
| Total Common fixed Cost | $ 5,782,000 |
| Alpha | Beta | ||
| Direct Materials | $ 36.00 | $ 24.00 | |
| Direct Labor | $ 32.00 | $ 27.00 | |
| Variable Manufacture Overhead | $ 19.00 | $ 17.00 | |
| Variable Selling expenses | $ 24.00 | $ 20.00 | |
| Total Variable Cost per unit | $ 111.00 | $ 88.00 |
Part 3
| Answer 3 | |||
| Alpha | |||
| Sales Price per unit for Special order | $ 128.00 | ||
| Less: Unit Variable Cost | $ 111.00 | ||
| Unit Contribution margin for Special order | $ 17.00 | ||
| Multiply: Number of units for Special order | 22,000 | ||
| Financial Advantage [Increase in profit] | $ 374,000 |
Part 5
| Answer 5 | |||
| Alpha | |||
| Sales Price per unit for Special order | $ 128.00 | ||
| Less: Unit Variable Cost | $ 111.00 | ||
| Unit Contribution margin for Special order | $ 17.00 | ||
| Multiply: Number of units for Special order | 22,000 | ||
| Total Contribution margin from Special order | 374,000 | ||
| Less: Contribution margin Lost from Regular Sales (11000*(180-111)) | 759,000 | ||
| Financial (Disadvantage) [Decrease in profit] | $ (385,000) | ||
| Company Should not accept the special order. | Not accept |
Part 6
| Answer 6 | |||
| Beta | |||
| Selling price of Beta | $ 145 | ||
| Less: Unit Variable Cost | $ 88 | ||
| Unit Contribution margin | $ 57 | ||
| Multiply: Normally Units of Beta Sold | 102,000 | ||
| Lost in Contribution margin if Beta product line discounted | $ 5,814,000 | ||
| Traceable Fixed per unit | $ 30 | ||
| Multiply: Annual Capacity | 118,000 | ||
| Saving in Traceable Fixed if Beta product line discounted | $ 3,540,000 | ||
| Saving in Traceable Fixed if Beta product line discounted | $ 3,540,000 | ||
| Less: Lost in Contribution margin if Beta product line discounted | $ 5,814,000 | ||
| Financial (Disadvantage) [Decrease in profit] | $ (2,274,000) |
Part 7
| Answer 7 | |||
| Beta | |||
| Selling price of Beta | $ 145 | ||
| Less: Unit Variable Cost | $ 88 | ||
| Unit Contribution margin | $ 57 | ||
| Multiply: Normally Units of Beat Sold | 52,000 | ||
| Lost in Contribution margin if Beta product line discounted | $ 2,964,000 | ||
| Traceable Fixed per unit | $ 30 | ||
| Multiply: Annual Capacity | 118,000 | ||
| Saving in Traceable Fixed if Beta product line discounted | $ 3,540,000 | ||
| Saving in Traceable Fixed if Beta product line discounted | $ 3,540,000 | ||
| Less: Lost in Contribution margin if Beta product line discounted | $ 2,964,000 | ||
| Financial Advantage [Increase in profit] | $ 576,000 |
Part 8
| Answer 8 | |||
| Beta | |||
| Selling price of Beta | $ 145 | ||
| Less: Unit Variable Cost | $ 88 | ||
| Unit Contribution margin | $ 57 | ||
| Multiply: Normally Units of Beat Sold | 72,000 | ||
| Lost in Contribution margin if Beta product line discounted | $ 4,104,000 | ||
| Traceable Fixed per unit |
 ekkarill92 answered 1 year agoRelated SolutionsCane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively....
Cane Company manufactures two products called Alpha and Beta
that sell for $180 and $145, respectively. Each product uses only
one type of raw material that costs $6 per pound. The company has
the capacity to annually produce 118,000 units of each product. Its
unit costs for each product at this level of activity are given
below:
Alpha
Beta
Direct materials
$
36
$
24
Direct labor
32
27
Variable
manufacturing overhead
19
17
Traceable fixed
manufacturing overhead
27
30...
Cane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively....Cane Company manufactures two products called Alpha and Beta
that sell for $180 and $145, respectively. Each product uses only
one type of raw material that costs $6 per pound. The company has
the capacity to annually produce 118,000 units of each product. Its
unit costs for each product at this level of activity are given
below:
Alpha
Beta
Direct materials
$
36
$
24
Direct labor
32
27
Variable manufacturing overhead
19
17
Traceable fixed manufacturing overhead
27
30...
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that sell for $180 and $145, respectively. Each product uses only
one type of raw material that costs $6 per pound. The company has
the capacity to annually produce 118,000 units of each product. Its
average cost per unit for each product at this level of activity
are given below: Alpha Beta Direct materials $ 36 $ 24 Direct labor
32 27 Variable manufacturing overhead 19 17 Traceable fixed
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Beta
Direct materials
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30
$
10
Direct
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22
29
Variable
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13
Traceable fixed
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that sell for $185 and $120, respectively. Each product uses only
one type of raw material that costs $5 per pound. The company has
the capacity to annually produce 112,000 units of each product. Its
average cost per unit for each product at this level of activity
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to be avoidable, whereas its common fixed expenses are unavoidable
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average cost per unit for each product at this level of activity
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average cost per unit for each product at this level of activity
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average cost per unit for each product at this level of activity
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