Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha $ 30 Beta Direct materials $ 12 Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses 20 15 5 16 18 12 8. 15 10 Total cost per unit $ 100 $ 68 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. 6. Assume that Cane normally produces and sells 90,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Required information
[The following information applies to the questions displayed below.]
Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product
uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000
units of each product. Its average cost per unit for each product at this level of activity are given below:
Alpha
$ 30
Beta
Direct materials
$ 12
Direct labor
20
15
Variable manufacturing overhead
Traceable fixed manufacturing overhead
Variable selling expenses
Common fixed expenses
15
16
18
12
8
15
10
$ 100
$ 68
Total cost per unit
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.
6. Assume that Cane normally produces and sells 90,000 Betas per year. What is the financial advantage (disadvantage) of
discontinuing the Beta product line?
Transcribed Image Text:Required information [The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha $ 30 Beta Direct materials $ 12 Direct labor 20 15 Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses 15 16 18 12 8 15 10 $ 100 $ 68 Total cost per unit 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. 6. Assume that Cane normally produces and sells 90,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
Required information
[The following information applies to the questions displayed below.]
Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product
uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000
units of each product. Its average cost per unit for each product at this level of activity are given below:
Direct materials
Direct labor
Alpha
$ 30
Beta
$ 12
20
Variable manufacturing overhead
Traceable fixed manufacturing overhead
Variable selling expenses
Common fixed expenses
15
5
16
18
12
8
15
10
Total cost per unit
$ 100
$ 68
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.
5. 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 10,000 additional Alphas for a price of $80 per unit; however pursuing this opportunity will
decrease Alpha sales to regular customers by 5,000 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?
Complete this question by entering your answers in the tabs below.
Reg 5A
Reg 5B
What is the financial advantage (disadvantage) of accepting the new customer's order?
Req 5B >
Transcribed Image Text:Required information [The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Direct materials Direct labor Alpha $ 30 Beta $ 12 20 Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses 15 5 16 18 12 8 15 10 Total cost per unit $ 100 $ 68 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. 5. 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 10,000 additional Alphas for a price of $80 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 5,000 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? Complete this question by entering your answers in the tabs below. Reg 5A Reg 5B What is the financial advantage (disadvantage) of accepting the new customer's order? Req 5B >
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