Garrison Managerial Accounting pg. 560 #3. Do traceable fixed manufacturing overhead and common fixed costs have...

Garrison Managerial Accounting pg. 560 #3. Do traceable fixed manufacturing overhead and common fixed costs have to be used in answer to this question? Please answer problem for me. I submitted this problem at 9:10 am and have not received an answer. 3. Assume that Cane expeects to produce and sell 80,000 alphas during the current year. One of Cane's sales representatives had found a new customer that is willing to buy 10,000 additional alphas for a price of $80 per unit. If Cane accepts the customer's offer, how much willits profits increase or decrease? Cane Co. manufactures 2 products called aplha and beta that sell for $120 and $80 respectively. Each product uses only one type of raw meterial that costs $6 per pound. The company had the capacity to annually produce 100,000 units of each product. Alpha: Direct materials $30, Direct Labor $20, Variable Manuf OH $7, Traceable Fixed manuf OH $16, Variable Selling and Admin, $12, common fixed expenses $15, Total $100. Company considers traceable fixed manuf overhead to be avoidable and common fixed are unavoidable and allocated based on sales This is the entire question. I have posted it twice yesterday with no resolution. Please help.

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Expert Solution

A traceable fixed cost is a fixed cost that is incurred because of the existence of a segment. If the segment had never existed, the fixed cost would have not been incurred; and if the segment were eliminated, the fixed cost would disappear.

A common fixed cost is a fixed common cost that supports the operations of more than one segment, but is not traceable in whole or in part to any one segment. Even if a segment were entirely eliminated, there would be no change in true common fixed cost.

In this Question we cannot avoid the traceable fixed cost as we are not shuting the Alpha Segment. So, traceable fixed manufacturing overhead and common fixed costs have to be used in answer to this question.

If Company is Producing and Selling 80,000 units so Profit = (120-100)*80000=1,600,000

and If Company accepts the new order of 10,000 units then,

Sales ((80000*120)+(10000*80) 10,400,000

Direct Material:(90000*30) (2,700,000)

Direct Labour (90000*20) (1,800,000)

Variable Mafu OH(90000*7) (630,000)

Traceable Fixed Mafu OH(80000*16) (1,280,000)

Variable Selling and Admin (90000*12) (1,080,000)

Common Fixed Expenses(80000*15) (1,200,000)

Net Profit 1,710,000

As the Profit is increased by (1,710,000- 1,600,000) 110,000, we should accepts the new order of 10,000 units.

ekkarill92 answered 1 year ago

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