21 Jun WHAT IS THE COMPANY’S TOTAL AMOUNT OF COMMON FIXED EXPENSES?
Cane Company manufactures two products called Alpha and Beta that sell for $135 and $95, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 105,000 units of each product. Its unit costs for each product at this level of activity are given below:
Alpha Beta
Direct materials $ 30 $ 18
Direct labor 23 16
Variable manufacturing overhead 10 8
Traceable fixed manufacturing overhead 19 21
Variable selling expenses 15 11
Common fixed expenses 18 13
Total cost per unit $ 115 $ 87 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:
1. What is the total amount of traceable fixed manufacturing overhead for the Alpha product line and for the Beta product line?
2. What is the company’s total amount of common fixed expenses?
3. Assume that Cane expects to produce and sell 83,000 Alphas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 13,000 additional Alphas for a price of $92 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?
4. Assume that Cane expects to produce and sell 93,000 Betas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 4,000 additional Betas for a price of $42 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?
5. Assume that Cane expects to produce and sell 98,000 Alphas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 13,000 additional Alphas for a price of $92 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 6,000 units.
a. Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.)
b. Based on your calculations above should the special order be accepted?
6. Assume that Cane normally produces and sells 93,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
7. Assume that Cane normally produces and sells 43,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
8. Assume that Cane normally produces and sells 63,000 Betas and 83,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 18,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?
9. Assume that Cane expects to produce and sell 83,000 Alphas during the current year. A supplier has offered to manufacture and deliver 83,000 Alphas to Cane for a price of $92 per unit. If Cane buys 83,000 units from the supplier instead of making those units, how much will profits increase or decrease?
10. Assume that Cane expects to produce and sell 53,000 Alphas during the current year. A supplier has offered to manufacture and deliver 53,000 Alphas to Cane for a price of $92 per unit. If Cane buys 53,000 units f
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