Question 6: Cane Company manufactures two products called Alpha and Beta that sell for $210 and $172, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 128,000 units of each product. Its unit costs for each product at this level of activity are given below: For Alpha: Direct materials: $40 Direct labour:38 Variable manufacturing overhead:25 Traceable fixed manufacturing overhead:33 Variable selling expenses:30 Common fixed expenses:33 Cost per unit:$199 For Beta: Direct materials:$24 Direct labour:34 Variable manufacturing overhead:23 Traceable fixed manufacturing overhead:36 Variable selling expenses:26 Common fixed expenses:28 Cost per unit:$171 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars. Assume that Cane expects to produce and sell 113,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 28,000 additional Alphas for a price of $152 per unit. If Cane accepts the customer's offer, it will decrease Alpha sales to regular customers by 13,000 units. a. Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.) Find Incremental net operating income.
Question 6: Cane Company manufactures two products called Alpha and Beta that sell for $210 and $172, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 128,000 units of each product. Its unit costs for each product at this level of activity are given below: For Alpha: Direct materials: $40 Direct labour:38 Variable manufacturing overhead:25 Traceable fixed manufacturing overhead:33 Variable selling expenses:30 Common fixed expenses:33 Cost per unit:$199 For Beta: Direct materials:$24 Direct labour:34 Variable manufacturing overhead:23 Traceable fixed manufacturing overhead:36 Variable selling expenses:26 Common fixed expenses:28 Cost per unit:$171 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars. Assume that Cane expects to produce and sell 113,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 28,000 additional Alphas for a price of $152 per unit. If Cane accepts the customer's offer, it will decrease Alpha sales to regular customers by 13,000 units. a. Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.) Find Incremental net operating income.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 6: Cane Company manufactures two products called Alpha and Beta that sell for $210 and $172, respectively. Each product
uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 128,000 units of each
product. Its unit costs for each product at this level of activity are given below:
For Alpha:
Direct materials:$40
Direct labour:38
Variable manufacturing overhead:25
Traceable fixed manufacturing overhead:33
Variable selling expenses:30
Common fixed expenses:33
Cost per unit:$199
For Beta:
Direct materials:$24
Direct labour:34
Variable manufacturing overhead:23
Traceable fixed manufacturing overhead:36
Variable selling expenses:26
Common fixed expenses:28
Cost per unit:$171
The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed
unavoidable and have been allocated to products based on sales dollars.
Assume that Cane expects to produce and sell 113,000 Alphas during the current year. One of Cane's sales representatives has found a
new customer that is willing to buy 28,000 additional Alphas for a price of $152 per unit. If Cane accepts the customer's offer, it will
decrease Alpha sales to regular customers by 13,000 units. a. Calculate the incremental net operating income if the order is accepted?
(Loss amount should be indicated with a minus sign.) Find Incremental net operating income.
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