Cane Company manufactures two products called Alpha and Beta that sell for $215
ID: 2480217 • 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: Alpha Beta Direct materials $ 42 $ 21 Direct labor 35 28 Variable manufacturing overhead 23 21 Traceable fixed manufacturing overhead 31 34 Variable selling expenses 28 24 Common fixed expenses 31 26 Total cost per unit $ 190 $ 154 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
Assume that Cane expects to produce and sell 96,000 Alphas during the current year. A supplier has offered to manufacture and deliver 96,000 Alphas to Cane for a price of $144 per unit. If Cane buys 96,000 units from the supplier instead of making those units, how much will profits increase or decrease?
9.Assume that Cane expects to produce and sell 96,000 Alphas during the current year. A supplier has offered to manufacture and deliver 96,000 Alphas to Cane for a price of $144 per unit. If Cane buys 96,000 units from the supplier instead of making those units, how much will profits increase or decrease?
Explanation / Answer
Answer:9
Particulars Make Buy Cost of Purchasing (96000 units*$144) 13824000 Direct material (96000 units *42) 4032000 Direct labor (96000 units*35) 3360000 Variable manufacturing overhead (96000 units*$23) 2208000 Traceable fixed manufacturing overhead 3875000 Total costs 13475000 13824000 Difference in favor of continuing to make the Alpha 349000Related Questions
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