Reference no: EM132602995

Cane Company manufactures two products called Alpha and Beta that sell for $195 and $150, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 123,000 units of each product. Its average cost per unit for each product at this level of activity are given below:

                                                           Alpha                 Beta

Direct materials                           $40                   $15

Direct labor                                    34                     28

Variable manufacturing overhead            22                   20

Traceable fixed manufacturing overhead      30                  33

Variable selling expenses                             27                  23

Common fixed expenses                              30                     25

Total cost per unit                                     $183             $144

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.

Required:

Question 1. What is the total amount of traceable fixed manufacturing overhead for each of the two products?

Question 2. What is the company's total amount of common fixed expenses?

Question 3. Assume that Cane expects to produce and sell 95,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 25,000 additional Alphas for a price of $140 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

Question 4. Assume that Cane expects to produce and sell 105,000 Betas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 2,000 additional Betas for a price of $63 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

Question 5. Assume that Cane expects to produce and sell 110,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 25,000 additional Alphas for a price of $140 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 12,000 units.