Cane Company manufactures two products called Alpha and Beta that sell for $210

Question

Cane Company manufactures two products called Alpha and Beta that sell for $210 and $172, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 128,000 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.

Assume that Cane’s customers would buy a maximum of 98,000 units of Alpha and 78,000 units of Beta. Also assume that the company’s raw material available for production is limited to 248,000 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 $210 and $172, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 128,000 units of each product. Its unit costs for each product at this level of activity are given below:

Explanation / Answer

So Contribution per raw material unit of Alpha is Maximum 9 so it can pay maximum

Raw material cost+Contribution per raw material unit

=8.+8.80

=$16.80

Alpha Beta Sales price per unit         210                   172 Direct materials           40                      24 Direct labor           38                      34 Variable manufacturing overhead           25                      23 Traceable fixed manufacturing overhead           33                      36 Variable selling expenses           30                      26 Common fixed expenses (Sunk Cost)             -                         -   Total cost per unit         166                   143 Contribution margin per unit           44                      29 Qty required to make per unit              5                        3 Contribution margin raw material              8.80                      9.67 Co. will make Beta first and alpha after this Material Available 248000 pounds Beta requirement per unit 3 pounds Required for maximum production 82666.67 Maximum sales 78000 Required Material 234000 78000*3 Material Available for Alpha 14000 248000-234000

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