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 $225 and $175, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 130,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta $ 24 $ 42 42 26 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 24 37 27 29 $173 31 34 $209 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 99,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 29,000 additional Alphas for a price of $156 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order? inancial advantage

Explanation / Answer

Financial Advantage/Disadvantage for 29000 units

Total Variable cost per unit - (Direct material + direct labour + Variable overhead + Variable selling expenses)

$42 + $42 + $26 + $31 = $141 variable cost per unit

Particulars Amount Incremental Revenue ($156*29000) $4524000 Relevent Cost ($141*29000) $4089000 Financial Advantage $435000

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