Required information [The following information applies to the questions display

Question

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 $110, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 108,000 units of each product. Its average cost per unit for each product at this level of activity are given below Alpha Beta 15 30 26 13 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 24 14 16 $102 18 21 $130 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. 6. Assume that Cane normally produces and sells 96,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? inancial (disadvantage) 2,016,000

Explanation / Answer

Solution 6:

Financial disadvantage on discontinuing beta line = $2,016,000

Solution 9:

Financial disadvantage of buying alpha from outside supplier = $634,000

Differential Analysis - Sale Beta (96000 units) (alt 1) or Discontinue Beta (Alt2) Particulars Sale Beta (110000 Units)
(Alt 1) Discontinue Beta (Alt 2) Differential effect on income (Alt 2) Details Amount Details Amount Revenue 96000*$110 $10,560,000.00 $0.00 -$10,560,000.00 Costs: Direct Material 96000*$15 $1,440,000.00 $0.00 -$1,440,000.00 Direct Labor 96000*$22 $2,112,000.00 $0.00 -$2,112,000.00 Variable manufacturing Overhead 96000*$11 $1,056,000.00 $0.00 -$1,056,000.00 Variable Selling Expenses 96000*$14 $1,344,000.00 $0.00 -$1,344,000.00 Traceable Fixed manufacturing overhead 108000*$24 $2,592,000.00 $0.00 -$2,592,000.00 Common fixed expenses 108000*$16 $1,728,000.00 108000*$16 $1,728,000.00 $0.00 Income / (Loss) $288,000.00 -$1,728,000.00 -$2,016,000.00

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