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.

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:

Explanation / Answer

Profit if Beta is manufactured :

contribution margin = 130 -80 =50                 [Variable cost = 24+25+14+17 = 80]

Fixed traceable cost = 27*49000 = 1323000

Fixed common cost = 19*49000 = 931000

Profit = ( 49000*50 ) - 1323000-931000

            = 2450000-2254000

          = -196000

If Beta is discontinued :Loss = Common cost = - $ 931000

so profit will decrease by (931000 -196000) =$ 735000 if Beta is discontinued .

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.