Cane Company manufactures two products called Alpha and Beta that sell for $215
ID: 2473640 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $215 and $160, respectively. Each product uses only one type of raw material that costs $7 per pound. The company has the capacity to annually produce 125,000 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 96,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 26,000 additional Alphas for a price of $144 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?
6. Assume that Cane normally produces and sells 106,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
7. Assume that Cane normally produces and sells 56,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
8. Assume that Cane normally produces and sells 76,000 Betas and 96,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 16,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?
15. Assume that Cane’s customers would buy a maximum of 96,000 units of Alpha and 76,000 units of Beta. Also assume that the company’s raw material available for production is limited to 246,000 pounds. Up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)
Cane Company manufactures two products called Alpha and Beta that sell for $215 and $160, respectively. Each product uses only one type of raw material that costs $7 per pound. The company has the capacity to annually produce 125,000 units of each product. Its unit costs for each product at this level of activity are given below:
Explanation / Answer
Answer 3
The profit impact is computed as follows
Answer 6 & 7 & 8
The profit impact of dropping the Beta product line is computed as follows
* => 160 - (21 +28 +21 +24) => 66
Answer 8
Contribution in ALPHA => 215 - (42 +35+23+ 28) => 87 per unit
Contibution in BETA => 160 - (21 +28 +21 +24) => 66 per unit
Contribution margin per pound of Alpha => 87 / (42/7) => 14.5
Contribution margin per pound of Beta => 66 / (21/7) => 22
The company will satisfy all demand for Betas, it would use additional raw materials to produce Alpha.
PARTICULARS AMOUNT ($) TOTAL AMOUNT ($) Incremental Revenue(26000*144) 3744000 Incremental Variable Costs Direct materials (26000 *42) 1092000 Direct labor (26000 * 35) 910000 Variable manufacturing overhead(26000*23) 598000 Variable selling expenses (26000 * 28) 728000 Total Costs 3328000 Profit 416000Related Questions
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