4. Assume that Cane expects to produce and sell 92,000 Betas during the current

Question

4. Assume that Cane expects to produce and sell 92,000 Betas during the current year. One of Cane’s sales representatives has found a new customer who is willing to buy 2,000 additional Betas for a price of $41 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

Required information The Foundational 15 [LO12-2, LO12-3, LO12-4, LO12-5, LO12-6] [The following information applies to the questions displayed below., Cane Company manufactures two products called Alpha and Beta that sell for $130 and $90, respectively. Eaclh product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 102,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta $10 21 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit s 25 17 18 14 17 $113 20 10 12 $80 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.

Explanation / Answer

Incremental revenue 82000 =2000*41 Incremental costs: Direct materials 20000 =2000*10 Direct labor 42000 =2000*21 Variable manufacturing overhead 14000 =2000*7 variable selling expenses 20000 =2000*10 Total Incremental costs 96000 Financial advantage(disadvantage) -14000

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