A. Assume that Cane expects to produce and sell 107,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 22,000 additional Alphas for a price of $128 per unit. If Crane accepts the customer's offer, it will decrease Alphas sales to regular customers by 11,000 units. Calculate the incremental net operating income if the order is accepted?( loss amount should be indicated with minus sign)
B. Assume that Crane expects to produce and sell 92,000 Alphas during the current year. A supplier has offered to manufacture and deliver 92,000 Alphas to Crane for a price of $128 per unit. If Crane buys 92,000 units from the supplier instead of making those units how much will profits increase or decrease?
C. Assume that Crane expects to produce and sell 62,000 Alphas during the current year. A supplier has offered to manufacturer and deliver 62,000 Alphas to Crane for a price of $128 per unit. If Crane buys 62,000 units from the supplier instead of making those units how much will profits increase or decrease?
Questions
The following information applies to the questions displayed belowj Cane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively.
Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 118,000 units of each product. Its unit costs for each product at this level of activity are given below:
|
|
Alpha
|
Beta
|
|
Direct Materials
|
$36
|
$24
|
|
Direct labor
|
32
|
27
|
|
variable manufacturing overhead
|
19
|
17
|
|
Traceable Fixed manufacturing overhead
|
27
|
30
|
|
Variable Selling Expenses
|
24
|
20
|
|
Common Fixed Expenses
|
27
|
22
|
|
Total cost per unit
|
$165
|
$140
|
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.