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 average cost per unit 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 unavoidable and have been allocated to products based on sales dollars. Questions: A. 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 who is willing to buy 18,000 additional Alphas for a price of $112 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order? B. 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 who is willing to buy 4,000 additional Betas for a price of $47 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order? C. 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 who is willing to buy 18,000 additional Alphas for a price of $112 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 9,000 units. What is the financial advantage (disadvantage) of accepting the new customer’s order? Should the special order be accepted?

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 average cost per unit 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 unavoidable and have been allocated to products based on sales dollars. Questions: A. 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 who is willing to buy 18,000 additional Alphas for a price of $112 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order? B. 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 who is willing to buy 4,000 additional Betas for a price of $47 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order? C. 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 who is willing to buy 18,000 additional Alphas for a price of $112 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 9,000 units. What is the financial advantage (disadvantage) of accepting the new customer’s order? Should the special order be accepted?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

	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 unavoidable and have been allocated to products based on sales dollars.

Questions:

A. 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 who is willing to buy 18,000 additional Alphas for a price of $112 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

B. 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 who is willing to buy 4,000 additional Betas for a price of $47 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

C. 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 who is willing to buy 18,000 additional Alphas for a price of $112 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 9,000 units. What is the financial advantage (disadvantage) of accepting the new customer’s order? Should the special order be accepted?

Required information
[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 average cost per unit for each product at this level of activity are given
below:
Alpha
$ 30
22
20
24
20
23
Beta
$ 10
29
13
Direct materials
Direct labor
Variable manufacturing overhead
Traceable fixed manufacturing overhead
Variable selling expenses
Common fixed expenses
26
16
18
Total cost per unit
$139
$112
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.
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 who is willing to buy 18,000 additional Alphas for a price
of $112 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?
Financial advantage

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