[The following information applies to the questions displayed below. Cane Compan
ID: 2466929 • Letter: #
Question
[The following information applies to the questions displayed below. Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 107,000 units of each product. Its unit costs for each product at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Alpha Beta $30 $10 20 10 23 13 15 25 12 21 17 20 Total cost per unit $125 $ 91 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.Explanation / Answer
Answer:
11)
Calculation of pounds of raw materials needed to make one unit
Alpha
Beta
Direct Material Cost Per Unit
$30
$10
Raw Material Cost Per Pound
$5
$5
Pounds of Raw Materials per unit
(Direct Material Cost Per Unit / Per Pound Cost)
6
2
12)
Alpha
Beta
Contribution Margin Per Unit
$66.00
$52.00
Pounds of Raw Materials per unit (as per part 11)
6
2
Contribution Margin Per Pound
$11.00
$26.00
13)
Since the contribution margin per pound of Beta is higher, company should make Beta first.
Pound of Raw Material will be needed to make 65,000 Units = 65,000 Units x 2 Pound per unit = 130,000 Units
Balance Pounds of Raw Material left = 166,000 – 130,000 = 36,000 Pounds
From this 36,000 Pounds, the Alpha Unit can be made = 36,000 / 6 pounds per unit = 6,000 Units
Alpha
Beta
Units Produced
6,000
65,000
14)
Maximum Contribution Margin
Alpha
Beta
Units Produced
6,000
65,000
Contribution Margin Per Unit (from part 12)
$66
$52
Total Contribution Margin
$396,000
$3,380,000
Total Contribution Margin = $396,000 + $3,380,000 = $3,776,000
Alpha
Beta
Direct Material Cost Per Unit
$30
$10
Raw Material Cost Per Pound
$5
$5
Pounds of Raw Materials per unit
(Direct Material Cost Per Unit / Per Pound Cost)
6
2
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