[The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta 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 unit costs for each product at this level of activity are given below: Alpha Beta Direct materials $ 30 $ 10 Direct labor 22 29 Variable manufacturing overhead 20 13 Traceable fixed manufacturing overhead 24 26 Variable selling expenses 20 16 Common fixed expenses 23 18 Total cost per unit $ 139 $ 112 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?
ANSWER: traceable fixed manufacturing overhead: Alpha ______________ Beta _____________
2. What is the company’s total amount of common fixed expenses?
ANSWER: total amount of common fixed expenses _____________
3. Assume that Cane expects to produce and sell 88,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 18,000 additional Alphas for a price of $112 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?
ANSWER: Net operating income__________ by ___________
4. Assume that Cane expects to produce and sell 98,000 Betas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 4,000 additional Betas for a price of $47 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?
ANSWER: Net operating income__________ by ___________
5. Assume that Cane expects to produce and sell 103,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 18,000 additional Alphas for a price of $112 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 9,000 units.
ANSWER: Net operating income__________ by ___________
a. Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.) .
ANSWER: incremental net operating income __________________
B. Based on your calculations above should the special order be accepted? Yes No
6. Assume that Cane normally produces and sells 98,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
ANSWER: Profit __________ by ___________
7. Assume that Cane normally produces and sells 48,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
ANSWER: Profit __________ by ___________
8. Assume that Cane normally produces and sells 68,000 Betas and 88,000 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?
ANSWER: Profit __________ by ___________
9. Assume that Cane expects to produce and sell 88,000 Alphas during the current year. A supplier has offered to manufacture and deliver 88,000 Alphas to Cane for a price of $112 per unit. If Cane buys 88,000 units from the supplier instead of making those units, how much will profits increase or decrease?
ANSWER: Profit __________ by ___________
10. Assume that Cane expects to produce and sell 58,000 Alphas during the current year. A supplier has offered to manufacture and deliver 58,000 Alphas to Cane for a price of $112 per unit. If Cane buys 58,000 units from the supplier instead of making those units, how much will profits increase or decrease?
ANSWER: Profit __________ by ___________