Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. Each
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Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 107,000 units of each product. Its average cost per unit for each product at this level of activity are given below:
Alpha | Beta | |||||||
Direct materials | $ | 30 | $ | 10 | ||||
Direct labor | 25 | 20 | ||||||
Variable manufacturing overhead | 12 | 10 | ||||||
Traceable fixed manufacturing overhead | 21 | 23 | ||||||
Variable selling expenses | 17 | 13 | ||||||
Common fixed expenses | 20 | 15 | ||||||
Total cost per unit | $ | 125 | $ | 91 |
a. What is the financial advantage (disadvantage) of accepting the new customer's order?
b. Based on your calculations above should the special order be accepted?
Related Book For
Introduction to Managerial Accounting
ISBN: 978-0078025792
7th edition
Authors: Peter Brewer, Ray Garrison, Eric Noreen
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