Question

Required information (The following information applies to the questions displayed below.) Cane Company manufactures two products called Alpha and Beta that sell for $150 and $110, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 108,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Alpha $ 30 26 13 22 18 21 $130 Beta $ 15 22 11 24 14 16 $102 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.

Answer 1

3)

Particular		Amount $
Incremental Sales (16,000*104)		16,64,000
Less Variable Costs
Direct Material (16,000*30)	4,80000
Direct Labor (16,000*26)	4,16000
Variable Manufacturing Overhead (16,000*13)	2,08,000
Variable Selling Expenses (16,000*18)	2,88,000
Incremental Total Variable Cost		(13,92,000)
Incremental Profits		2,72,000

The profits will increase by $272000 if the offer is accepted.

(here we are not considering fixed cost- the concept is - when we take any decesion irrelevant cost (fixed cost ) and sunk cost (money alredy spend which cannot recovered )should not consider . because if we accept order or not fixed cost not change , its fixed so it will not consider .

5)

Particular		Amount $
Incremental Sales (16,000*104)		16,64,000
Less Variable Costs
Direct Material (16,000*30)	4,80000
Direct Labor (16,000*26)	4,16000
Variable Manufacturing Overhead (16,000*13)	2,08,000
Variable Selling Expenses (16,000*18)	2,88,000
Incremental Total Variable Cost		(13,92,000)
Loss of Contribution Margin from Regular Customers [9000*(150-30-26-13-18)]		(567000)
Incremental Profits		(295,000)
The net operating income would decrease by-$295000 if the offer is accepted.

7)

Particular		Amount $
conribution 46000(110-15-22-11-14)		22,08,000
Less - fixed cost (24*108000)		(25,92,000)
net income of beta		(384000)

9) when we produce alpha

Particular	make
Direct Material (86000*30)	30
Direct Labor 86000*26)	26
Variable Manufacturing Overhead (86000*13	13
Total Variable Cost	69
variable cost 86000*69	59,34,000
fixed cost 22*108000	23,76,000
total cost	83,10,000

Particular	buy
purchase price 86000	104
total cost	89,44,000

here cost of manufacture is less as compare to purchase so co. should manufacture the product .