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Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117,000 units of each product. Its unit costs for each product at this level of activity are given below:

	Alpha				Beta
Direct materials		$	40			$	15
Direct labor			30				30
Variable manufacturing overhead			18				16
Traceable fixed manufacturing overhead			26				29
Variable selling expenses			23				19
Common fixed expenses			26				21
Total cost per unit		$	163			$	130

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. 5. Assume that Cane expects to produce and sell 106,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 21,000 additional Alphas for a price of $124 per unit. If Cane accepts the customers offer, it will decrease Alpha sales to regular customers by 10,000 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? Yes No 6. Assume that Cane normally produces and sells 101,000 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 51,000 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 71,000 Betas and 91,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 11,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease? 9. Assume that Cane expects to produce and sell 91,000 Alphas during the current year. A supplier has offered to manufacture and deliver 91,000 Alphas to Cane for a price of $124 per unit. If Cane buys 91,000 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 61,000 Alphas during the current year. A supplier has offered to manufacture and deliver 61,000 Alphas to Cane for a price of $124 per unit. If Cane buys 61,000 units from the supplier instead of making those units, how much will profits increase or decrease? 11. How many pounds of raw material are needed to make one unit of Alpha and one unit of Beta? 12. What contribution margin per pound of raw material is earned by Alpha and Beta? (Round your answers to 2 decimal places.) 13. Assume that Canes customers would buy a maximum of 91,000 units of Alpha and 71,000 units of Beta. Also assume that the companys raw material available for production is limited to 225,000 pounds. How many units of each product should Cane produce to maximize its profits? 14. Assume that Canes customers would buy a maximum of 91,000 units of Alpha and 71,000 units of Beta. Also assume that the companys raw material available for production is limited to 225,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials? 15. Assume that Canes customers would buy a maximum of 91,000 units of Alpha and 71,000 units of Beta. Also assume that the companys raw material available for production is limited to 225,000 pounds. Up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)

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