[The following information applies
to the questions displayed below.]

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:

Alpha

Beta

Direct materials

$

35

$

15

Direct labor

48

23

Variable manufacturing
overhead

27

25

Traceable fixed
manufacturing overhead

35

38

Variable selling
expenses

32

28

Common fixed expenses

35

30

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.

Required:

1.

What is the total amount of traceable fixed manufacturing
overhead for the Alpha product line and for the Beta product line?

2.

What is the company’s total amount
of common fixed expenses?

3.

Assume that
Cane expects to produce and sell 100,000 Alphas during the current year. One
of Cane’s sales representatives has found a new customer that is willing to
buy 30,000 additional Alphas for a price of $160 per unit. If Cane accepts
the customer’s offer, how much will its profits increase or decrease?

4.

Assume that
Cane expects to produce and sell 110,000 Betas during the current year. One
of Cane’s sales representatives has found a new customer that is willing to
buy 2,000 additional Betas for a price of $83 per unit. If Cane accepts the
customer’s offer, how much will its profits increase or decrease?

5.

Assume that
Cane expects to produce and sell 115,000 Alphas during the current year. One
of Cane’s sales representatives has found a new customer that is willing to
buy 30,000 additional Alphas for a price of $160 per unit. If Cane accepts
the customer’s offer, it will decrease Alpha sales to regular customers by
14,000 units.

a.

Calculate the
incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.)

b.

Based on your calculations above
should the special order be accepted?

6.

Assume that
Cane normally produces and sells 110,000 Betas per year. If Cane discontinues
the Beta product line, how much will profits increase or decrease?

7.

Assume that
Cane normally produces and sells 60,000 Betas per year. If Cane discontinues
the Beta product line, how much will profits increase or decrease?

8.

Assume that
Cane normally produces and sells 80,000 Betas and 100,000 Alphas per year. If
Cane discontinues the Beta product line, its sales representatives could
increase sales of Alpha by 13,000 units. If Cane discontinues the Beta
product line, how much would profits increase or decrease?

9.

Assume that
Cane expects to produce and sell 100,000 Alphas during the current year. A
supplier has offered to manufacture and deliver 100,000 Alphas to Cane for a
price of $160 per unit. If Cane buys 100,000 units from the supplier instead
of making those units, how much will profits increase or decrease?

10.

Assume that
Cane expects to produce and sell 75,000 Alphas during the current year. A
supplier has offered to manufacture and deliver 75,000 Alphas to Cane for a
price of $160 per unit. If Cane buys 75,000 units from the supplier instead
of making those units, how much will profits increase or decrease?