Cane company manufactures two products called alpha and

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Reference no: EM13588294

Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 units of each product. Its unit costs for each product at this level of activity are given below:

	Alpha			Beta
Direct materials		$	30		$	12
Direct labor			20			15
Variable manufacturing overhead			7			5
Traceable fixed manufacturing overhead			16			18
Variable selling expenses			12			8
Common fixed expenses			15			10

Total cost per unit		$	100		$	68

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.

Required:

Assume that Cane expects to produce and sell 50,000 Alphas during the current year. A supplier has offered to manufacture and deliver 50,000 Alphas to Cane for a price of $80 per unit. If Cane buys 50,000 units from the supplier instead of making those units, how much will profits increase or decrease? (Input the amount as positive value.)

Profit

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Reference no: EM13588294

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