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:
|
Alpha |
Beta |
| 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.)
|
| Profit |
(Click to select)IncreasesDecreases |
by |
$ |