Cane Company manufactures two products called Alpha and Beta that sell for $165 and $130, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 113,000 units of each product. Its average cost per unit for each product at this level of activity is given below: Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Alpha $40 29 15 25 21 24 $ 154 Beta $24 25 14 27 17 19 $ 126 The company's traceable fixed manufacturing overhead is avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Foundational 13-5 (Algo) 5. Assume Cane expects to produce and sell 104,000 Alphas during the current year. One of Cane's sales representatives found a new customer willing to buy 19,000 additional Alphas for a price of $116 per unit; however, pursuing this opportunity will decrease Alpha sales to regular customers by 10,000 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?
Cane Company manufactures two products called Alpha and Beta that sell for $165 and $130, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 113,000 units of each product. Its average cost per unit for each product at this level of activity is given below: Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Alpha $40 29 15 25 21 24 $ 154 Beta $24 25 14 27 17 19 $ 126 The company's traceable fixed manufacturing overhead is avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Foundational 13-5 (Algo) 5. Assume Cane expects to produce and sell 104,000 Alphas during the current year. One of Cane's sales representatives found a new customer willing to buy 19,000 additional Alphas for a price of $116 per unit; however, pursuing this opportunity will decrease Alpha sales to regular customers by 10,000 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Required information
The Foundational 15 (Algo) (LO13-2, LO13-3, LO13-4, LO13-5, LO13-6]
[The following information applies to the questions displayed below.)
Cane Company manufactures two products called Alpha and Beta that sell for $165 and $130, respectively. Each product
uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 113,000
units of each product. Its average cost per unit for each product at this level of activity is given below:
Direct materials
Direct labor
Variable manufacturing overhead
Traceable fixed manufacturing overhead
Variable selling expenses
Common fixed expenses.
Total cost per unit
Alpha
$ 40
29
15
25
21
24
$ 154
Beta
$ 24
25
14
27
17
19
$ 126
The company's traceable fixed manufacturing overhead is avoidable, whereas its common fixed expenses are
unavoidable and have been allocated to products based on sales dollars.
Foundational 13-5 (Algo)
5. Assume Cane expects to produce and sell 104,000 Alphas during the current year. One of Cane's sales representatives found a new
customer willing to buy 19,000 additional Alphas for a price of $116 per unit; however, pursuing this opportunity will decrease Alpha
sales to regular customers by 10,000 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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F012be4ac-25f7-4b84-9847-d3cc80340491%2Fcf19f9cd-4305-4b0d-bbc3-2602e5d05284%2Ff3qutqa_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Required information
The Foundational 15 (Algo) (LO13-2, LO13-3, LO13-4, LO13-5, LO13-6]
[The following information applies to the questions displayed below.)
Cane Company manufactures two products called Alpha and Beta that sell for $165 and $130, respectively. Each product
uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 113,000
units of each product. Its average cost per unit for each product at this level of activity is given below:
Direct materials
Direct labor
Variable manufacturing overhead
Traceable fixed manufacturing overhead
Variable selling expenses
Common fixed expenses.
Total cost per unit
Alpha
$ 40
29
15
25
21
24
$ 154
Beta
$ 24
25
14
27
17
19
$ 126
The company's traceable fixed manufacturing overhead is avoidable, whereas its common fixed expenses are
unavoidable and have been allocated to products based on sales dollars.
Foundational 13-5 (Algo)
5. Assume Cane expects to produce and sell 104,000 Alphas during the current year. One of Cane's sales representatives found a new
customer willing to buy 19,000 additional Alphas for a price of $116 per unit; however, pursuing this opportunity will decrease Alpha
sales to regular customers by 10,000 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?
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