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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 $8 per pound. The company has the capacity to annually produce 128,000 units of each product. Its average cost per unit for each product at this level of activity are given below:
|Variable manufacturing overhead||25||23|
|Traceable fixed manufacturing overhead||33||36|
|Variable selling expenses||30||26|
|Common fixed expenses||33||28|
|Total cost per unit||$||199||$||171|
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.
4. Assume that Cane expects to produce and sell 108,000 Betas during the current year. One of Cane’s sales representatives has found a new customer who is willing to buy 3,000 additional Betas for a price of $81 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?
|Particulars||Amount (in $ )|
( 3,000 Units x $ $ 81)
|Less: Incremental costs:|
( 3,000 Units x $ 24)
( 3,000 Units x $ 34)
Variable manufacturing overhead
( 3,000 Units x $ 23)
- Variable selling expenses
( 3,000 Units x $ 26)
|Financial disadvantage of accepting the new customer's order||($ 78,000)|
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