Reference no: EM132602969

Cane Company manufactures two products called Alpha and Beta that sell for $195 and $150, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 123,000 units of each product. Its average cost per unit for each product at this level of activity are given below:

                                                    Alpha                       Beta

Direct materials                          $40                      $15

Direct labor                                34                         28

Variable manufacturing overhead        22                       20

Traceable fixed manufacturing overhead   30                    33

Variable selling expenses                         27                      23

Common fixed expenses                        30                         25

Total cost per unit                                $183                   $144

The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars.

Required:

Question 1. What is the total amount of traceable fixed manufacturing overhead for each of the two products?

Question 2. What is the company's total amount of common fixed expenses?

Question 3. Assume that Cane expects to produce and sell 95,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 25,000 additional Alphas for a price of $140 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

Question 4. Assume that Cane expects to produce and sell 105,000 Betas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 2,000 additional Betas for a price of $63 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

Question 5. Assume that Cane expects to produce and sell 110,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 25,000 additional Alphas for a price of $140 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 12,000 units.

a. What is the financial advantage (disadvantage) of accepting the new customer's order?

b. Based on your calculations above should the special order be accepted?

Question 6. Assume that Cane normally produces and sells 105,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

Question 7. Assume that Cane normally produces and sells 55,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?