1. Total Traceable Fixed Manufacturing Overhead
To find the total fixed manufacturing overhead for each product, we identify costs directly linked to production. In this case, only depreciation on dedicated manufacturing equipment is traceable.
How to solve
Assuming a 10% depreciation rate, Alpha's equipment depreciation is $1,640,000, and Beta's is $1,360,000. These figures result from multiplying the depreciation rate by the cost of each product's dedicated manufacturing equipment.
Therefore, the total traceable fixed manufacturing overhead for the Alpha product is $1,640,000, and the total traceable fixed manufacturing overhead for the Beta product is $1,360,000.
2. Total Common Fixed Expenses
Common fixed expenses are those that cannot be directly assigned to a particular product or department. They are typically incurred for the overall operation of the business, such as rent, utilities, and salaries for administrative personnel.
In this case, the total common fixed expenses are given as $3,400,000. This amount is not allocated to the products based on sales dollars. Instead, it is treated as a separate expense item on the income statement.
3. Financial Advantage of Accepting the New Customer's Order
To determine the financial advantage (disadvantage) of accepting the new customer's order, we need to compare the incremental revenue from the new order to the incremental costs of producing and selling the additional units.
The incremental revenue from the new order is calculated as follows:
Incremental Revenue = (Number of units * Price per unit) = (23,000 units * $132 per unit) = $3,016,000
The incremental costs of producing and selling the additional units are calculated as follows:
Incremental Costs = (Number of units * Variable manufacturing costs per unit) + (Variable selling expenses per unit) = (23,000 units * $128 per unit) + ($12 per unit) = $2,994,000
Comparing the incremental revenue to the incremental costs, we can see that there is a financial advantage of $22,000 to accepting the new customer's order. This is because the incremental revenue is slightly higher than the incremental costs.
Therefore, Cane should accept the new customer's order as it would increase the company's overall profit.