Question

4. Assume that Cane expects to produce and sell 100,000 Betas during the current year. One of Cane’s sales representatives has found a new customer who is willing to buy 3,000 additional Betas for a price of $49 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

Return to question Cane Company manufactures two products called Alpha and Beta that sell for $170 and $130, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 116,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha $ 30 Beta $ 18 Direct materials Direct labor 30 25 Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses 20 15 26 28 22 18 25 20 $153 $124 Total cost per unit 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 100,000 Betas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 3,000 additional Betas for a price of $49 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

Answer 1

Direct materials	18
Direct labor	25
Variable manufacturing overhead	15
Variable selling expenses	18
Unit variable cost	76
Incremental revenue from sales	147000	=3000*49
Less : Incremental costs	228000	=3000*76
Net change in income	-81000
Financial (disadvantage) (81000)