Cane Company manufactures two products called Alpha and Beta that sell for $140
ID: 2518349 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $140 and $100, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 106,000 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.
A. Assume that Cane normally produces and sells 94,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
B. Assume that Cane normally produces and sells 44,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
C. Assume that Cane’s customers would buy a maximum of 84,000 units of Alpha and 64,000 units of Beta. Also assume that the company’s raw material available for production is limited to 166,000 pounds. Up to how much should it be willing to pay per pound for additional raw materials?
D. Assume that Cane’s customers would buy a maximum of 84,000 units of Alpha and 64,000 units of Beta. Also assume that the company’s raw material available for production is limited to 166,000 pounds. How many units of each product should Cane produce to maximize its profits?
Cane Company manufactures two products called Alpha and Beta that sell for $140 and $100, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 106,000 units of each product. Its unit costs for each product at this level of activity are given below:
Explanation / Answer
Alpha Beta Sales $140 $100 Less: variable cost Direct materials 32 16 Direct labor 24 19 Variable manufacturing overhead 10 9 Variable selling expenses 16 12 Total variable expenses 82 56 Contribution Margin $58 $44 Traceable fixed manufacturing overhead 20 22 Common fixed expenses 19 14 ans a Loss on contribution margin by Beta -4136000 44*94000 Less: avoidable Traceable fixed manufacturing overhead 2332000 (22*106000) Profit will decrease by -1804000 ans b Loss on contribution margin by Beta -1936000 44*44000 Less: avoidable Traceable fixed manufacturing overhead 2332000 (22*106000) Profit will increase by 396000 ans c Alpha Beta Sales $140 $100 Less: variable cost Direct materials 32 16 Direct labor 24 19 Variable manufacturing overhead 10 9 Variable selling expenses 16 12 Total variable expenses 82 56 Contribution Margin $58 $44 No. of pounds required for one unit 4 2 32/8 16/8 Contribution margin per pound $14.50 $22.00 Ranking 2 1 First Beta will be produced , raw material required (64000*2) 128000 Than Alpha will be produced but it is short of raw material hence Additional raw material is required for Alpha hence the Direct material cost per pound $8 Contribution margin per pound for Alpha 14.5 Maximum price that can be paid $22.5 ans ans 4 First Beta will be produced , raw material required (64000*2) 128000 Alpha production(166000-128000)/4 pounds= 9500 Maximization of profit ans Units produced Beta 64000 Alpha 9500
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