Reference no: EM132493237

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. Its unit costs for each product at this level of activity are given below:

                                                  Alpha                  Beta

Direct materials                              $ 40              $ 24

Direct labor                                       29               25

Variable manufacturing overhead           15                14

Traceable fixed manufacturing overhead   25              27

Variable selling expenses                         21            17

Common fixed expenses                           24            19

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.

Required:

Question 1: Assume that Cane normally produces and sells 99,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease? (Input the amount as positive value.)