Cane Company manufactures two products called Alpha and Beta that sell for $130
ID: 2451161 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $130 and $90, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 102,000 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 $130 and $90, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 102,000 units of each product. Its unit costs for each product at this level of activity are given below:
Explanation / Answer
Solution :
Beta
92000 units
92000 + 2000 @41
Sales
90
8280000
8362000
Variable cost
Direct Material
10
920000
Direct Labour
21
1932000
Variable selling exp.
10
920000
V. Manufacturing O.
7
644000
Total Variable Cost
48
4416000
48*94000=4512000
Contribution
42
3864000
3850000
Less fixed cost
Traceable
20
Common
12
Total net income
10
From the information provided,
Contribution at 92000 units is $ 3864000
Contribution at 92000 units at sale price of $90 and additional 2000 units at $ 41 is 3850000
Thus Contribution decreases by $ 14000. So If Cane accepts the customer’s offer, its profits will decrease by $ 14000. (fixed costs are constant)
Beta
92000 units
92000 + 2000 @41
Sales
90
8280000
8362000
Variable cost
Direct Material
10
920000
Direct Labour
21
1932000
Variable selling exp.
10
920000
V. Manufacturing O.
7
644000
Total Variable Cost
48
4416000
48*94000=4512000
Contribution
42
3864000
3850000
Less fixed cost
Traceable
20
Common
12
Total net income
10
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