Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117,000 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 Beta $40 $15 30 18 26 23 26 $ 163 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. 30 16 29 19 21 $ 130 5. Assume that Cane expects to produce and sell 106,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 21,000 additional Alphas for a price of $124 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 10,000 units. Req 5A 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? Req 5B Complete this question by entering your answers in the tabs below. Req 5B What is the financial advantage (disadvantage) of accepting the new customer's order?
Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117,000 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 Beta $40 $15 30 18 26 23 26 $ 163 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. 30 16 29 19 21 $ 130 5. Assume that Cane expects to produce and sell 106,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 21,000 additional Alphas for a price of $124 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 10,000 units. Req 5A 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? Req 5B Complete this question by entering your answers in the tabs below. Req 5B What is the financial advantage (disadvantage) of accepting the new customer's order?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product
uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117,000
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 Beta
$ 40
$15
30
18
26
23
26
$ 163
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.
30
16
29
19
21
$ 130
5. Assume that Cane expects to produce and sell 106,000 Alphas during the current year. One of Cane's sales representatives has
found a new customer who is willing to buy 21,000 additional Alphas for a price of $124 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?
Req 5A
Complete this question by entering your answers in the tabs below.
Req 5B
Req 5B
What is the financial advantage (disadvantage) of accepting the new customer's order?
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