Required information [The following information applies to the questions display

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Required information [The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 units of each product. Its average cost per unit for each product at this level of activity are given below Alpha Beta $12 15 $ 30 20 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 16 12 15 $100 18 10 $68 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 80,000 Alphas during the current year. One of Cane's sales representatives as found a new customer who is willing to buy 10,000 additional Alphas for a price of $80 per unit. What is the financial dvantage (disadvantage) of accepting the new customer's order? inancial advantage

Explanation / Answer

Net Financial Advantage/ Disadvantage: Incremental revenue (10000 Units @ 80) 800000 Less: Incremental cost Material (10000*30) 300000 Labour (10000*20) 200000 Variable Manufacturing OH (10000*7) 70000 Variable Selling expense (10000*12) 120000 Net financial Advantage 110000 hence, Customer must be accepted

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