Required Information The following information applies to the questions displaye
ID: 2403823 • Letter: R
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Required Information The following information applies to the questions displayed below Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 107,000 units of each product. Its unit costs for each product at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Alpha $ 30 25 12 21 17 20 Beta $ 10 20 10 23 13 15 Total cost per unit $125 $ 91 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.Explanation / Answer
Statement of Ranking :-
Alpha
Beta
SP
150
105
(-) DM
30
10
(-) DL
25
20
(-) V.M.O/H
12
10
(-) Traceable fixed mfr O/H
21
23
(-) Variable selling exp
17
13
Contribution PU (A)
45
29
RM required in pound per unit (B)
6
2
Contribution per pound (A/B)
7.5
14.5
Ranking
2nd
1st
Raw Material optimum Utilisation :-
Ranking
Product
Demand
Units Produced
(A)
RM (Pound) required pu
(B)
RM (Pound) Allocated
(A * B)
Balance RM (Pound)
1st
Beta
65000
65000
2
130000
(166000 – 130000)
=36000
2nd
Alpha
85000
6000
6
36000
0
Maximum price paid for Raw Material per pound = Raw material existing price + Contribution lost per pound
Due to limited RM (Pound) available, we lost the contribution on Alpha
Contribution per pound for Alpha = $7.5
Maximum Price paid per Pound = $5 + $7.5 = $12.5
Alpha
Beta
SP
150
105
(-) DM
30
10
(-) DL
25
20
(-) V.M.O/H
12
10
(-) Traceable fixed mfr O/H
21
23
(-) Variable selling exp
17
13
Contribution PU (A)
45
29
RM required in pound per unit (B)
6
2
Contribution per pound (A/B)
7.5
14.5
Ranking
2nd
1st
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