Reference no: EM131632352

Question - Cane Company manufactures two products called Alpha and Beta that sell for $130 and $90, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 102,000 units of each product. Its unit costs for each product at this level of activity are given below:

Alpha Beta 

Direct materials $25  $10

Direct labor  22   21 

Variable manufacturing overhead  17   7  

Traceable fixed manufacturing overhead  18   20  

Variable selling expenses  14   10  

Common fixed expenses  17   12   

Total cost per unit $113  $80  

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.

1. What is the total amount of traceable fixed manufacturing overhead for the Alpha product line and for the Beta product line?

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

3. Assume that Cane expects to produce and sell 82,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 12,000 additional Alphas for a price of $88 per unit. If Cane accepts the customer's offer, how much will its profits increase or decrease?