Required information [The following information applies to the questions display

Question

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 4. Assume that Cane expects to produce and sell 90,000 Betas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 5,000 additional Betas for a price of $39 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order? inancial (disadvantage)

Explanation / Answer

1 Sales revenue 195000 =5000*39 Costs: Direct materials 60000 =5000*12 Direct labor 75000 =5000*15 Variable manufacturing overhead 25000 =5000*5 Variable selling expenses 40000 =5000*8 Total incremental costs 200000 Incremental income(loss) -5000 Financial (disadvantage) ($5000) 2 Simple rate of return = Net operating income/Investment cost = 487000/2860000= 17.03%

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