Question

Required Information (The following information applies to the questions displayed below.) Cane Company manufactures two products called Alpha and Beta that sell for $185 and $150, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 119,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha $ 40 Beta $ 24 28 20 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 28 18 31 28 $174 $145 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 108.000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 23.000 additional Alphas for a price of $132 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 accepted? Complete this question by entering your answers in the tabs below. Req 5A Reg 5B What is the financial advantage (disadvantage) of accepting the new customer's order? E ............ R <Reg SA Reg 5B > Financial (disadvantage) Financial advantage

Answer 1

	Alpha
Direct materials	40
Direct labor	33
Variable manufacturing overhead	20
Variable selling expenses	25
Total variable expenses	118
5a
Incremental revenue	3036000	=23000*132
Incremental expenses	-2714000	=23000*118
Loss in contribution margin on regular sales	-804000	=12000*(185-118)
Net change in income	-482000
Financial (disadvantage) (482000)
5b
No, the special order should not be accepted