Cane Company manufactures two products called Alpha and Beta that sell for $140 and $100, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 106,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 32 $ 16 Direct labor 24 19 Variable manufacturing overhead 10 9 Traceable fixed manufacturing overhead 20 22 Variable selling expenses 16 12 Common fixed expenses 19 14 Total cost per unit $ 121 $ 92 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. Foundational 11-3 (Algo) 3. Assume that Cane expects to produce and sell 84,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 14,000 additional Alphas for a price of $96 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Cane Company manufactures two products called Alpha and Beta that sell for $140 and $100, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 106,000 units of each product. Its average cost per unit for each product at this level of activity are given below:
| Alpha | Beta | |
|---|---|---|
| Direct materials | $ 32 | $ 16 |
| Direct labor | 24 | 19 |
| Variable manufacturing overhead | 10 | 9 |
| Traceable fixed manufacturing overhead | 20 | 22 |
| Variable selling expenses | 16 | 12 |
| Common fixed expenses | 19 | 14 |
| Total cost per unit | $ 121 | $ 92 |
The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars.
Foundational 11-3 (Algo)
3. Assume that Cane expects to produce and sell 84,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 14,000 additional Alphas for a price of $96 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?
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