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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:
Expert Answer
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
