Question

Required information The Foundational 15 [LO11-2, LO11-3, LO11-4, LO11-5, LO11-6] [The following information applies to the questions displayed belowj Cane Company manufactures two products called Alpha and Beta that sell for $215 and $160, respectively. Each product uses only one type of raw material that costs $7 per pound. The company has the capacity to annually produce 125,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta $ 21 28 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit $ 42 35 23 31 28 31 $190 34 26 $154 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

5. Assume that Cane expects to produce and sell 111,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 26,000 additional Alphas for a price of $144 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 12,000 units.

a. What is the financial advantage (disadvantage) of accepting the new customer’s order?

b. Based on your calculations above should the special order be accepte

6. Assume that Cane normally produces and sells 106,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

7. Assume that Cane normally produces and sells 56,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

8. Assume that Cane normally produces and sells 76,000 Betas and 96,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 16,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

Answer 1

5.a. Statement showing Analysis to acept the order
	Per Unit	Total ( $)
No. of Unit in additional Order	26000
Direct Material	42	10,92,000
Direct Labour	35	9,10,000
Variable manufacturing OH	23	5,98,000
Variable selling expense	28	7,28,000
Total Variable cost	128	33,28,000
Add: Opportunt cost due to lost of sale ($215-128)*12000		10,44,000
Total relevant Cost (a)		43,72,000
Sales Revenue (b)	144	37,44,000
Financial Advantage ( Disadvantage) (b-a)		-6,28,000
5.b. Special order should not be acepted
6. Statement showing Analysis to discontnue Beta
	Per Unit	Total ( $)
Contribution from Beta (160-21-28-21-24)*106000		69,96,000
Less: Traceable fixed Expense (34*125000)		42,50,000
Decrease in Profit due to beta Discontinued		27,46,000
7. Statement showing Analysis to discontnue Beta
	Per Unit	Total ( $)
Contribution from Beta (160-21-28-21-24)*56000		36,96,000
Less: Traceable fixed Expense (34*125000)		42,50,000
Increase in Operatin income		5,54,000
8. Statement showing Analysis to discontnue Beta & increase Alpha
	Per Unit	Total ( $)
Contribution from Beta (160-21-28-21-24)*76000		50,16,000
Less: Traceable fixed Expense (34*125000)		42,50,000
Decrease in Profit due to beta Discontinued (a)		7,66,000
Contribution from Additiional Alpha Unit (215-128)*16000) (b)		13,92,000
Net additonal income/ (loss) (b-a)		6,26,000