Cane Company manufactures two products called Alpha and Beta that sell for $155
ID: 2474377 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $155 and $115, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 110,000 units of each product. Its unit costs for each product at this level of activity are given below: Alpha Beta Direct materials $ 24 $ 12 Direct labor 23 26 Variable manufacturing overhead 22 12 Traceable fixed manufacturing overhead 23 25 Variable selling expenses 19 15 Common fixed expenses 22 17 Total cost per unit $ 133 $ 107
1. What is the total amount of traceable fixed manufacturing overhead for the Alpha product line and for the Beta product line?
2. What is the company’s total amount of common fixed expenses?
3. Assume that Cane expects to produce and sell 87,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 17,000 additional Alphas for a price of $108 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 97,000 Betas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 3,000 additional Betas for a price of $46 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?
Explanation / Answer
Answer for question no.1:
Total amount of traceable fixed manufacturing overhead= prodcutino capacity * fixed manufacturing overhead
=110000*23 for alpha and 110000*25 for Beta
=$2,530,000 for alpha and $2,750,000 for Beta.
Answer for question no.2:
Total amount of common fixed expenses = 22*110000+17*110000
=2420000+1870000
=$4,290,000.
Answer for question no.3:
Additional sales =17,000 units of Alpha at a price of $108 per unit, Revised contribution =Selling price-Total variable cost =108-88=20 per unit.
Increase in income = 20*17000=$340,000.
Answer for question no.4:
Additional sought to be sold=3000 units.
Price per unit=$46.
Total variable cost per unit of Beta is 65, But the selling price offered is $46, this results in a negative contribution of $19*3000 =$57,000.
So, the profit would reduce by $57,000.
Particulars Alpha Beta Selling price $155.00 $115.00 Direct materials $24.00 $12.00 Direct labour $23.00 $26.00 Variable manufacturing overhead $22.00 $12.00 Variable selling expenses $19.00 $15.00 Total variable cost $88.00 $65.00 Contribution $67.00 $50.00Related Questions
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