Cane Company manufactures two products called Alpha and Beta that sell for $225

Question

Cane Company manufactures two products called Alpha and Beta that sell for $225 and $175, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 130,000 units of each product. Its unit costs for each product at this level of activity are given below: Alpha Beta Direct materials $42 $24 Direct labor 42 32 Variable manufacturing overhead 26 24 Traceable fixed manufacturing overhead 34 37 Variable selling expenses 31 27 Common fixed expenses 34 29 Total cost per unit $209 $173 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. What is the total amount of traceable fixed manufacturing overhead for the Alpha product line and for the Beta product line? Alpha? Beta? What is the company’s total amount of common fixed expenses? Assume that Cane expects to produce and sell 99,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 29,000 additional Alphas for a price of $156 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease? Net operating income__by__ Assume that Cane expects to produce and sell 109,000 Betas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 5,000 additional Betas for a price of $82 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease? Net operating income__by__ Assume that Cane expects to produce and sell 114,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 29,000 additional Alphas for a price of $156 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 13,000 units. Calculate the incremental net operating income if the order is accepted? Assume that Cane normally produces and sells 109,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease? profit__by__ Assume that Cane normally produces and sells 59,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?profit__by__ Assume that Cane normally produces and sells 79,000 Betas and 99,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 12,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease? profit__by__ Assume that Cane expects to produce and sell 99,000 Alphas during the current year. A supplier has offered to manufacture and deliver 99,000 Alphas to Cane for a price of $156 per unit. If Cane buys 99,000 units from the supplier instead of making those units, how much will profits increase or decrease? profit__by__ Assume that Cane expects to produce and sell 74,000 Alphas during the current year. A supplier has offered to manufacture and deliver 74,000 Alphas to Cane for a price of $156 per unit. If Cane buys 74,000 units from the supplier instead of making those units, how much will profits increase or decrease? profit__by__ How many pounds of raw material are needed to make one unit of Alpha and one unit of Beta? Pounds of raw material per unit Alpha? Beta? What contribution margin per pound of raw material is earned by Alpha and Beta?Contribution margin per pound? Alpha? Beta? Assume that Cane’s customers would buy a maximum of 99,000 units of Alpha and 79,000 units of Beta. Also assume that the company’s raw material available for production is limited to 344,000 pounds. How many units of each product should Cane produce to maximize its profits? Units produced Alpha? Beta? Assume that Cane’s customers would buy a maximum of 99,000 units of Alpha and 79,000 units of Beta. Also assume that the company’s raw material available for production is limited to 344,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials? Total contribution margin?

Explanation / Answer

There are multiple questions. Also, the information is completely mixed up. I have answered first 4 on the basis of information I am able to extract.

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Part 1)

The total traceable manufacturing overhead can be calculated as follows:

Alpha = Annual Capacity*Traceable Fixed Manufacturing Overhead Per Unit = 130,000*34 = $4,420,000

Beta = Annual Capacity*Traceable Fixed Manufacturing Overhead Per Unit = 130,000*37 = $4,810,000

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Part 2)

The total amount of common fixed expense can be calculated as follows:

Total Common Fixed Expense = Sales in Units of Alpha*Common Fixed Expense Per Unit of Alpha + Sales in Units of Beta*Common Fixed Expense Per Unit of Beta = 130,000*34 + 130,000*29 = $8,190,000

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Part 3)

The increase or decrease in profit or loss has been calculated with the use of following table:

The profits will increase by $435,000 if the offer is accepted.

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Part 4)

The profits will decrease by $125,000 if the offer is accepted.

Incremental Sales (29,000*156) 4,524,000 Increment Variable Costs Direct Material (29,000*42) 1,218,000 Direct Labor (29,000*42) 1,218,000 Variable Manufacturing Overhead (29,000*26) 754,000 Variable Selling Expenses (29,000*31) 899,000 Total Incremental Variable Cost 4,089,000 Incremental Profits $435,000

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