Question

Cane Company manufactures two products called Alpha and Beta that sell for S205 and $164, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 127,000 units of each product. Its unit costs for each product at this level of activity are given below: Alpha S 40 Beta S24 22 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses 35 Total cost per unit S 194 S163 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 97,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 27,000 additional Alphas for a price of $148 per unit. If Cane accepts the customer's offer, how much will its profits increase or decrease? (Input the amount as positive value.) Net operating income (Click to select) by S

Answer 1

	Alpha 27,000 (Additional units)
Sales(27,000*$148)	$3,996,000
Less:
Direct material (27,000*$40)	-1,080,000
Direct labor (27,000*$37)	-999,000
Variable manuifacturing overhead (27,000*$24)	-648,000
Variable selling expense (27,000*$39)	-1,053,000
Net operating income	$216,000

Net operating increases by $216,000