Cane Company manufactures two products called Alpha and Beta that sell for $135

Question

Cane Company manufactures two products called Alpha and Beta that sell for $135 and $95, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 105,000 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.

Assume that Cane expects to produce and sell 83,000 Alphas during the current year. A supplier has offered to manufacture and deliver 83,000 Alphas to Cane for a price of $92 per unit. If Cane buys 83,000 units from the supplier instead of making those units, how much will profits increase or decrease?

Assume that Cane expects to produce and sell 53,000 Alphas during the current year. A supplier has offered to manufacture and deliver 53,000 Alphas to Cane for a price of $92 per unit. If Cane buys 53,000 units from the supplier instead of making those units, how much will profits increase or decrease?

How many pounds of raw material are needed to make one unit of Alpha and one unit of Beta?

What contribution margin per pound of raw material is earned by Alpha and Beta? (Round your answers to 2 decimal places.)

Cane Company manufactures two products called Alpha and Beta that sell for $135 and $95, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 105,000 units of each product. Its unit costs for each product at this level of activity are given below:

Explanation / Answer

9) Total traceable fixed cost for Alpha = 105000 units x $19 per unit = $1995000

Savings if 83000 units of Alpha is purchased = Variable manufacturing cost of 83000 units + traceable fixed cost = 83000 x $63+$1995000 = $7224000

Purchase cost of 83000 units of Alpha = 83000 x $92 = $7636000

If alpha is purchased from the market, the profit of the company will decrease by = $7636000 - $7224000 = $412000

10)

Savings if 53000 units of Alpha is purchased = Variable manufacturing cost of 3000 units + traceable fixed cost = 53000 x $63+$1995000 = $5334000

Purchase cost of 83000 units of Alpha = 53000 x $92 = $4876000

If alpha is purchased from the market, the profit of the company will increase by = $5334000 - $4876000 = $458000

11)

12)

Particulars Alpha Beta Amount($) Amount($) Amount($) Amount($) Selling price per unit 135 95 Direct material 30 18 Direct labour 23 16 Variable manufacturing overhead 10 8 Variable manufacturing cost 63 42 variable selling expenses 15 11 Total variable cost per unit 78 53 Contribution Margin Per Unit 57 42

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