The following Information applies to the questions displayed below.j Cane Compan
ID: 2462424 • Letter: T
Question
The following Information applies to the questions displayed below.j Cane Company manufactures two products called Alpha and Beta that sell for $185 and $120, respectively Each product uses only one type of raw materlal that costs $5 per pound. The company has the capacity to annually produce 112.000 units of each product. Its unit costs for each product at this level of activity are given below Direct materlals Direct labor Varlable manufacturing overhead Traceable fixed manufacturing overhead Varlable selling expenses Common fixed expenses Alpha Beta $30 $10 29 13 26 16 18 20 20 23 Total cost per unit $139$112 The company conslders its traceable fixed manufacturing overhead to be avoldable, whereas Its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars. valueExplanation / Answer
1)
1.
Total traceable fixed cost for Alpha = 112000 units x $24 per unit = $2688000
Total traceable fixed cost for Beta = 112000 units x $26 per unit = $2912000
2. Total amount of common fixed expenses = 112000 x ($23 + $18) = 112000 x $41 = $4592000
3)
Total variable cost per unit of Alpha = $92 per unit
Selling price per unit of specail offer = $112
Contribution per unit of special offer = 112 - 92 = $20 per unit.
As the traceable fixed cost and common fixed costs remain same irrespective of accepting the special offer (the normal capacity is 112000 units)
The net operating income will increase by = 18000 x $20 = $360000
4)
Total variable cost per unit of Beta = $52 per unit
Selling price per unit of specail offer = $47 per unit
Contribution per unit of special offer = 52 - 47 =( $5) per unit.
As the traceable fixed cost and common fixed costs remain same irrespective of accepting the special offer (the normal capacity is 112000 units)
The net operating income will decrease by = 4000 x $5 = $20000
5)
Loss of contribution from 9000 regular units = $93 x 9000 = $837000
Contribution from 18000 units sold to new customer @$112 units = 18000 x $20 = $360000
If the order from new customer is accepted, the net incremental income = $837000 - $360000 = ($477000)
NOTE:
In all the above cases it has been assumed that the variable selling expense will have to be incurred for the new offers.
Particulars Alpha Beta Amount($) Amount($) Amount($) Amount($) Selling price per unit 185 120 Direct material 30 10 Direct labour 22 29 Variable manufacturing overhead 20 13 Variable manufacturing cost 72 52 variable selling expenses 20 16 Total variable cost per unit 92 68