Chec × Ashley Cezto.mheducation.com/hm.tpx?-=0.3967218686745263-1 5 1 1 97806436
ID: 2583107 • Letter: C
Question
Chec × Ashley Cezto.mheducation.com/hm.tpx?-=0.3967218686745263-1 5 1 1 978064366 Required information 1.00 points 4. Assume that Cane expects to produce and sell 90,000 Betas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 5,000 additional Betas for a price of $39 per unit. If Cane accepts the customer's offer, how much will its profits increase or decrease? operating income by Required Informati orn [The following information appWes to the questions displayed below Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 units of each product. Its unit costs for each product at this level of activity are given below: References eBook & Resources Alpha $ 30 20 Beta $ 12 15 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Worksheet Learning Objective: 12-03 Prepare a make or buy analysis. Difficulty: 2 Medium Learning Objective: 12-04 Prepare an analysis showing whether a special order should be accepted 16 12 15 18 10 Learning Objective: 12-02 Prepare an analysis showing whether a product line or other business segment should be added or dropped. Learning Objective: 12-05 Determine the most profitable use of a constrained Total cost per unit $100 $ 68Explanation / Answer
Net Operating Income Decreases by $5,000
Relevant Costs = Direct Materials ,Labor, Variable Over head, Variable Selling Expenses
Relevant Cost = $12 + $15 +$5 + $8 = $40
Sales Price = $39
Net Operating Income = Sales - Product Costs = ( $39 - $40) x 5000 = -$5,000
Since Incremental Revenue is less than the Relevant Cost it is better to reject the offer.