# Question & Answer: Cane Company manufactures two products called Alpha and Beta that sell for \$240 and \$162, respectively Each produ…..

Cane Company manufactures two products called Alpha and Beta that sell for \$240 and \$162, respectively Each product uses only one type of raw material that costs \$5 per pound. The company has the capacity to annually produce 131,000 units of each product. Its unit costs 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 Alpha Beta \$35 \$ 15 23 25 38 28 30 48 27 35 32 35 Total cost per unit \$212\$159 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. value 1.00 points Required: 1. What is the total amount of traceable fixed manufacturing overhead for the Alpha product line and for the Beta product line? Alpha Beta Traceable fixed manufacturing overhead 35E \$ 38:

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Explanation: 1: The total traceable fixed manufacturing overhead for Alpha and Beta is computed as follows:

 Alpha Beta Traceable fixed overhead per unit (a) 35 38 Level of activity in units (b) 131000 131000 Total traceable fixed overhead (a) × (b) 4585000 4978000

Explanation: 2. The total common fixed expenses is computed as follows:

 Alpha Beta Common fixed expenses per unit (a) 35 30 Level of activity in units (b) 131000 131000 Total common fixed expenses (a) × (b) 4585000 3930000

The company’s total common fixed expenses would be \$8,515,000.

3) Incremental net operating income INCREASE BY \$ 540,000

Explanation: 3. The profit impact is computed as follows:.

 Per unit Total Incremental revenue 160 4800000 Incremental costs: Variable costs: Direct materials 35 1050000 Direct labor 48 1440000 Variable manufacturing overhead 27 810000 Variable selling expenses 32 960000 Total variable cost 142 4260000 Incremental net operating income 18 540000

Incremental net operating income INCREASE BY \$ 540,000

4) Net operating income decreases by \$ 16,000

Explanation: 4.

 Per unit Total Incremental revenue 83 166000 Incremental costs: Variable costs: Direct materials 15 30000 Direct labor 23 46000 Variable manufacturing overhead 25 50000 Variable selling expenses 28 56000 Total variable cost 91 182000 Incremental net operating income -8 -16000

Explanation: 5. The profit impact is computed as follows:

 Incremental revenue (a) 30,000 units * \$160 4800000 Incremental variable costs= Direct materials (16,000 units × \$35) 560000 Direct labor (16,000 units × \$48) 768000 Variable manufacturing overhead (16,000 units × \$27) 432000 Variable selling expenses (16,000 units × \$32) 512000 Total incremental variable cost (b) 2272000 Foregone sales to regular customers (14,000 units × \$240) 3360000 Incremental net operating income (a) – (b) – (c) -832000

5-b) no order should not be accepted