Cane Company manufactures two products called Alpha and Beta that sell for $120
ID: 2355000 • Letter: C
Question
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:
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.
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:
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 $ 68The 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: What contribution margin per pound of raw material is earned by Alpha and Beta? (Round your answers to 2 decimal places.)
Explanation / Answer
Alpha: contribution margin: 120 - 30 - 20 - 7 - 12 = $51 pounds of raw material per unit: $30/$6 per pound = 5 pounds contribution margin per pound: $51/5 pounds = $10.20 per pound Beta contribution margin: 80 - 12 - 15 - 5 - 8 = $40 pounds of raw material per unit: $12/$6 per pound = 2 pounds contribution margin per pound: $40/2 pounds = $20.00 per pound
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