Cane Company manufactures two products called Alpha and Beta that sell for $225
ID: 2470914 • Letter: C
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:
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.
3. 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
4. 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?
5. What contribution margin per pound of raw material is earned by Alpha and Beta? (Round your answers to 2 decimal places.)
6. 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?
7. 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?
8. 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. Up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)
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 $ 173Explanation / Answer
3. 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 cost per unit Cost of 29000 additional units Revenue $156 $45,24,000 Direct materials $42 $12,18,000 Direct labor $42 $12,18,000 Variable manufacturing overhead $26 $7,54,000 Traceable fixed manufacturing overhead $34 $0 Variable selling expenses $31 $8,99,000 Common fixed expenses $34 $0 Total Costs $40,89,000 Increase in Net Income $4,35,000 4. 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? cost per unit Cost of 5000 additional units Revenue $82 $4,10,000 Direct materials $24 $1,20,000 Direct labor $32 $1,60,000 Variable manufacturing overhead $24 $1,20,000 Traceable fixed manufacturing overhead $37 $0 Variable selling expenses $27 $1,35,000 Common fixed expenses $29 $0 Total Costs $5,35,000 Decrease in Net Income -$1,25,000 5. What contribution margin per pound of raw material is earned by Alpha and Beta? Alpha Beta Selling Price 225 175 Less: Variable costs Direct Material 42 24 Direct Labor 42 32 Manufacturing Overhead 26 24 Selling expense 31 27 Total Variable costs 141 107 Contribution Margin 84 68 6. 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? Alpha Beta Contribution Margin per unit 84 68 Material used in pounds 7 4 Contribution Margin per Pound 12 17 Maximum Units - sales 99,000 79,000 Material required in pounds 6,93,000 3,16,000 Material available 28,000 3,16,000 Units to manufactured 4,000 79,000 7. 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? Alpha Beta Contribution Margin per unit 84 68 Material used in pounds 7 4 Contribution Margin per Pound 12 17 Maximum Units - sales 99000 79000 Material required in pounds 693000 316000 Material available 28000 316000 Units to manufactured 4000 79000 Contribution Margin per unit 84 68 Total contribution 336000 5372000 5708000 8. 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. Up to how much should it be willing to pay per pound for additional raw materials? Alpha Contribution Margin per Pound 12 Present price 6 Total price can be paid 18
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