8. Assume that Cane normally produces and sells 78,000 Betas and 98,000 Alphas p
ID: 2409435 • Letter: 8
Question
8. Assume that Cane normally produces and sells 78,000 Betas and 98,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 11,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?
IThe following Information apples to the questions displayed belowj Cane Company manufactures two products called Alpha and Beta that sell for $210 and $172, respectively. Each product uses only one type of raw materlal that costs $8 per pound. The company has the capacity to annually produce 128,000 units of each product. Its unit costs for each product at this level of activity are given below Direct materlals Direct labor Varlable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Alpha Beta $40 $24 34 23 36 26 28 38 25 30 Total cost per unit $199$171 The company conslders its traceable fixed manufacturing overhead to be avoldable, whereas Its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars.Explanation / Answer
Answers
Alpha
Beta
TOTAL
Normal Capacity
128000 units
128000 units
256000 units
Traceable FM OH per unit
$ 33.00
$ 36.00
Total Traceable fixed MO
$ 42,24,000.00
$ 46,08,000.00
$ 88,32,000.00
Common Fixed expenses per unit
$ 33.00
$ 28.00
Total Common Fixed Cost
$ 42,24,000.00
$ 35,84,000.00
$ 78,08,000.00
Alpha
Beta
Total
Units
98000
78000
176000
Sales price per unit
$ 210.00
$ 172.00
Variable costs per unit:
DM
$ 40.00
$ 24.00
DL
$ 38.00
$ 34.00
Variable MO
$ 25.00
$ 23.00
Variable Selling expense
$ 30.00
$ 26.00
Total Unit Variable cost
$ 133.00
$ 107.00
Unit Contribution margin
$ 77.00
$ 65.00
Total contribution margin
$ 75,46,000.00
$ 50,70,000.00
$ 126,16,000.00
Traceable (avoidable) fixed cost
$ 42,24,000.00
$ 46,08,000.00
$ 88,32,000.00
Controllable margin
$ 33,22,000.00
$ 4,62,000.00
$ 37,84,000.00
Common Fixed expense
$ 78,08,000.00
Net Income (Loss)
$ (40,24,000.00)
Alpha
Units
109000
Sales price per unit
$ 210.00
Variable costs per unit:
DM
$ 40.00
DL
$ 38.00
Variable MO
$ 25.00
Variable Selling expense
$ 30.00
Total Unit Variable cost
$ 133.00
Unit Contribution margin
$ 77.00
Total contribution margin
$ 83,93,000.00
Traceable (avoidable) fixed cost
$ 42,24,000.00
Controllable margin
$ 41,69,000.00
Common Fixed expense
$ 78,08,000.00
Net Income (Loss)
$ (36,39,000.00)
Earlier Net Income (Loss)
$ (40,24,000.00)
Decrease in Loss (or Increase in Net Income)
$ 3,85,000.00
Net Loss when both Alpha and Beta were sold = $ 4,024,000
Hence, Net Loss has DECREASED when Beta is discontinued, or it can be interpreted as Net Income has INCREASED when Beta is discontinued.
Net Income has INCREASED by $ 385,000 [4024000 – 3639000]
Alpha
Beta
TOTAL
Normal Capacity
128000 units
128000 units
256000 units
Traceable FM OH per unit
$ 33.00
$ 36.00
Total Traceable fixed MO
$ 42,24,000.00
$ 46,08,000.00
$ 88,32,000.00
Common Fixed expenses per unit
$ 33.00
$ 28.00
Total Common Fixed Cost
$ 42,24,000.00
$ 35,84,000.00
$ 78,08,000.00
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