Cane Company manufactures two products called Alpha and Beta that sell for $190

Question

Cane Company manufactures two products called Alpha and Beta that sell for $190 and $155, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 122,000 units of each product. Its unit costs for each product at this level of activity are given below: Alpha Beta Direct materials $ 40 $ 24 Direct labor 34 28 Variable manufacturing overhead 21 19 Traceable fixed manufacturing overhead 29 32 Variable selling expenses 26 22 Common fixed expenses 29 24 Total cost per unit $ 179 $ 149 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.

2. Assume that Cane normally produces and sells 104,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

Assume that Cane normally produces and sells 54,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

Assume that Cane normally produces and sells 74,000 Betas and 94,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 14,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?

Assume that Cane expects to produce and sell 94,000 Alphas during the current year. A supplier has offered to manufacture and deliver 94,000 Alphas to Cane for a price of $136 per unit. If Cane buys 94,000 units from the supplier instead of making those units, how much will profits increase or decrease?

Assume that Cane expects to produce and sell 69,000 Alphas during the current year. A supplier has offered to manufacture and deliver 69,000 Alphas to Cane for a price of $136 per unit. If Cane buys 69,000 units from the supplier instead of making those units, how much will profits increase or decrease?

Explanation / Answer

savings from discontinuing production of 94000 units of Alpha

Contribution made by 94000 units towards common fixed cost if made by the company

Contribution made by 69000 units towards common fixed cost if made by the company

Particulars Alpha Beta $ $ $ $ Selling price per unit 190 155 Less: variable cost Direct Material 40 24 Direct labour 34 28 variable manufacturing overhead 21 19 Variable selling expenses 26 22 121 93 Contribution 69 62 Treaceable fixed cost 3538000 3904000 Common fixed cost 3538000 2928000

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