Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80,...

Question

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:

Direct materials	$	30	$	12
Direct labor	20	15
Variable manufacturing overhead	7	5
Traceable fixed manufacturing overhead	16	18
Variable selling expenses	12	8
Common fixed expenses	15	10
Total cost per unit	$	100	$	68

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:

Assume that Cane expects to produce and sell 50,000 Alphas during the current year. A supplier has offered to manufacture and deliver 50,000 Alphas to Cane for a price of $80 per unit. If Cane buys 50,000 units from the supplier instead of making those units, how much will profits increase or decrease?(Input the amount as positive value.)

Robert · Accepted Answer

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:

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...

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