Cane Company manufactures two products called Alpha and Beta that sell for $225 and $175, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 130,000 units of each product. Its unit costs for each product at this level of activity are given below:
Alpha Beta Direct materials $ 42 $ 24 Direct labor 42 32 Variable manufacturing overhead 26 24 Traceable fixed manufacturing overhead 34 37 Variable selling expenses 31 27 Common fixed expenses 34 29 Total cost per unit $ 209 $ 173
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.
6.Assume that Cane normally produces and sells 109,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
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