Calculate the incremental net operating income

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Cane Company manufactures two products called Alpha and Beta that sell for $240 and $162, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 131,000 units of each product. Its unit costs for each product at this level of activity are given below:

Alpha Beta
  Direct materials $35 $15  
  Direct labor 48 23  
  Variable manufacturing overhead 27 25  
  Traceable fixed manufacturing overhead 35 38  
  Variable selling expenses 32 28  
  Common fixed expenses 35 30  
  Total cost per unit  $212 $159      
   

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 115,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 30,000 additional Alphas for a price of $160 per unit. If Cane accepts the customer's offer, it will decrease Alpha sales to regular customers by 14,000 units.

a. Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.)

 

Reference no: EM131776687

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