Question

Cane Company manufactures two products called Alpha and Beta that sell for $225 and $175, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 130,000 units of each product. Its unit costs for each product at this level of activity are given below:

	Alpha				Beta
Direct materials		$	42			$	24
Direct labor			42				32
Variable manufacturing overhead			26				24
Traceable fixed manufacturing overhead			34				37
Variable selling expenses			31				27
Common fixed expenses			34				29
Total cost per unit		$	209			$	173

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.

3.

Assume that Cane expects to produce and sell 99,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 29,000 additional Alphas for a price of $156 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?

4.

Assume that Cane expects to produce and sell 109,000 Betas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 5,000 additional Betas for a price of $82 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?

8.

Assume that Cane normally produces and sells 79,000 Betas and 99,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 12,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?

9.

Assume that Cane expects to produce and sell 99,000 Alphas during the current year. A supplier has offered to manufacture and deliver 99,000 Alphas to Cane for a price of $156 per unit. If Cane buys 99,000 units from the supplier instead of making those units, how much will profits increase or decrease?

10.

Assume that Cane expects to produce and sell 74,000 Alphas during the current year. A supplier has offered to manufacture and deliver 74,000 Alphas to Cane for a price of $156 per unit. If Cane buys 74,000 units from the supplier instead of making those units, how much will profits increase or decrease?

Answer 1