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ile Edit View History Bookmarks Window Help ezto.mheducation.com d Learn for Principles of Macroeconomics Foundational [L010-2, LO10-3, LO10-4, LO10-5, LO10-6] The following information applies to the questions displayed below. Cane Company manufactures two products called Alpha and Beta that sell for $165 and $130, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 113,000 units of each product. Iits unit costs for each product at this level of activity are glven below Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Varlable selling expenses Common fixed expenses AlphaBeta $ 40 $ 24 2925 14 2527 17 19 15 21 24 Total cost per unit $154 $126 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. References oundaliorasuo10-2.1010-3,L010-4 010-5/1019-6) Section Break value 0.50 points Foundational 10-1 29Explanation / Answer
1. Total amt.of traceable fixed mfg. OH for Alpha 113000*25= 2825000 Beta 113000*27= 3051000 2. Company's total amount of common fixed expenses: (113000*24)+(113000*19)= 4859000 3 As 89000+19000=108000 is within the current capacity level of Alpha, total fixed costs will be the same Marginal/Incremental cost of per unit of Alpha= Alpha Direct Materials 40 Direct labor 29 VMOH 15 Tracable FMOH 25 Variable S/Exp. 21 Total cost 130 Offer price 116 Per unit decrease will be 14 So, Net operating income will DECREASE by (14*19000)= 266000 4 As 99000+2000=101000 is within the current capacity level of Beta, total fixed costs will be the same Marginal/Incremental cost of per unit of Alpha= Beta Direct Materials 24 Direct labor 25 VMOH 14 Tracable FMOH 27 Variable S/E 17 Total cost 107 Offer price 48 Per unit decrease will be 59 So, Net operating income will DECREASE by (59*2000)= 118000 5.a. Net operating income (as per 3 ) DECREASE by (14*19000)= 266000 Variable costs& Traceable fixed costs saved in 10000 units decrease of regular sales(10000*130)= 1300000 Incremental Net operating income if the order is accepted=1300000-266000=1034000 5.b. YES The special order can be accepted. 6 (Sales Value lost -Costs saved)per unit=(130-107)=23 Net loss= 23 Profit will DECREASE by (99000*23)= 2277000 7 (Sales Value lost -Costs saved)per unit=(130-107)=23 Net loss= 23 Profit will DECREASE by (49000*23)= 1127000 8 BETA---(Sales Value lost -Costs saved)per unit=(130-107)=23 Net loss= 23 Profit will DECREASE by (69000*23)= 1587000 Incremental revenue of 13000 units of Alpha sales (165-130)*13000 455000 Profit will DECREASE by (1587000-455000)= 1132000 9. Profits will increase by Incremental costs saved(130-116)*89000= 1246000 10. Profits will increase by Incremental costs saved(130-116)*59000= 826000
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