Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. uses only one type of raw material that costs $5 per pound. The company has the capacity to annually prod units of each product. Its average cost per unit for each product at this level of activity are given below. Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead. Variable selling expenses Common fixed expenses Total cost per unit Alpha $30 25 12 21 17 20 $ 125 Beta $ 10 20 10 23 13 15 $ 91 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixe are unavoidable and have been allocated to products based on sales dollars.
Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. uses only one type of raw material that costs $5 per pound. The company has the capacity to annually prod units of each product. Its average cost per unit for each product at this level of activity are given below. Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead. Variable selling expenses Common fixed expenses Total cost per unit Alpha $30 25 12 21 17 20 $ 125 Beta $ 10 20 10 23 13 15 $ 91 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixe are unavoidable and have been allocated to products based on sales dollars.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. Each product
uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 107.000
units of each product. Its average cost per unit for each product at this level of activity are given below:
Direct materials
Direct labor
Variable manufacturing overhead
Traceable fixed manufacturing overhead
Variable selling expenses
Common fixed expenses
Total cost per unit
Alpha
$.30
25
12
21
17
20
$ 125
Financial (disadvantage)
Beta
$ 10
20
10
23
13
15
$ 91
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.
4. Assume that Cane expects to produce and sell 95,000 Betas during the current year. One of Cane's sales representatives has found
a new customer who is willing to buy 5,000 additional Betas for a price of $44 per unit. What is the financial advantage (disadvantage)
of accepting the new customer's order?
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