Cane Company manufactures two products called Alpha and Beta that sell for $165

Question

Cane Company manufactures two products called Alpha and Beta that sell for $165 and $130, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 113,000 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.

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

Assume that Cane’s customers would buy a maximum of 89,000 units of Alpha and 69,000 units of Beta. Also assume that the company’s raw material available for production is limited to 220,000 pounds. How many units of each product should Cane produce to maximize its profits?

Assume that Cane’s customers would buy a maximum of 89,000 units of Alpha and 69,000 units of Beta. Also assume that the company’s raw material available for production is limited to 220,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?

Assume that Cane’s customers would buy a maximum of 89,000 units of Alpha and 69,000 units of Beta. Also assume that the company’s raw material available for production is limited to 220,000 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 $ 40 $ 24   Direct labor 29 25   Variable manufacturing overhead 15 14   Traceable fixed manufacturing overhead 25 27   Variable selling expenses 21 17   Common fixed expenses 24 19   Total cost per unit $ 154 $ 126

Explanation / Answer

12.

Contribution margin per pound of raw material

Particulars

A

B

Selling price

$165

$130

Less: Variable expenses:

         Direct materials (M)

$40

$24

         Direct labor

$29

$25

         Variable manufacturing overhead

$15

$14

         Variable selling expenses

$21

$17

Contribution margin (C)

$60

$50

Raw material per pound (U)

$8

$8

Pound (M/U)

5

3

Contribution margin per pound (C/Pound)

$12

$16.67

Particulars

A

B

Selling price

$165

$130

Less: Variable expenses:

         Direct materials (M)

$40

$24

         Direct labor

$29

$25

         Variable manufacturing overhead

$15

$14

         Variable selling expenses

$21

$17

Contribution margin (C)

$60

$50

Raw material per pound (U)

$8

$8

Pound (M/U)

5

3

Contribution margin per pound (C/Pound)

$12

$16.67

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