Cane Company manufactures two products called Alpha and Beta that sell for $225

Question

Cane Company manufactures two products called Alpha and Beta that sell for $225 and $175, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 130,000 units of each product. Its average cost per unit 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 unavoidable and have been allocated to products based on sales dollars.

1.What is the total amount of traceable fixed manufacturing overhead for each of the two products?

2.What is the company’s total amount of common fixed expenses?

3.Assume that Cane expects to produce and sell 99,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 29,000 additional Alphas for a price of $156 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

4.Assume that Cane expects to produce and sell 109,000 Betas during the current year. One of Cane’s sales representatives has found a new customer who is willing to buy 5,000 additional Betas for a price of $82 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

5. Assume that Cane expects to produce and sell 114,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 29,000 additional Alphas for a price of $156 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 13,000 units.

a. What is the financial advantage (disadvantage) of accepting the new customer’s order?

b. Based on your calculations above should the special order be accepted?

6. Assume that Cane normally produces and sells 109,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

7. Assume that Cane normally produces and sells 59,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

8. Assume that Cane normally produces and sells 79,000 Betas and 99,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 12,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

9. Assume that Cane expects to produce and sell 99,000 Alphas during the current year. A supplier has offered to manufacture and deliver 99,000 Alphas to Cane for a price of $156 per unit. What is the financial advantage (disadvantage) of buying 99,000 units from the supplier instead of making those units?

10. Assume that Cane expects to produce and sell 74,000 Alphas during the current year. A supplier has offered to manufacture and deliver 74,000 Alphas to Cane for a price of $156 per unit. What is the financial advantage (disadvantage) of buying 74,000 units from the supplier instead of making those units?

11. How many pounds of raw material are needed to make one unit of each of the two products?

12. What contribution margin per pound of raw material is earned by each of the two products? (Round your answers to 2 decimal places.)

13. Assume that Cane’s customers would buy a maximum of 99,000 units of Alpha and 79,000 units of Beta. Also assume that the company’s raw material available for production is limited to 344,000 pounds. How many units of each product should Cane produce to maximize its profits?

14. Assume that Cane’s customers would buy a maximum of 99,000 units of Alpha and 79,000 units of Beta. Also assume that the company’s raw material available for production is limited to 344,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?

15. Assume that Cane’s customers would buy a maximum of 99,000 units of Alpha and 79,000 units of Beta. Also assume that the company’s raw material available for production is limited to 344,000 pounds. If Cane uses its 344,000 pounds of raw materials, up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)

Alpha Beta Direct materials $ 42 $ 24 Direct labor 42 32 Variable manufacturing overhead 26 24 Traceable fixed manufacturing overhead 34 37 Variable selling expenses 31 27 Common fixed expenses 34 29 Total cost per unit $ 209 $ 173

Explanation / Answer

Solution 1:

Traceable manufacturing overhead:

Alpha = 130000*$34 = $4,420,000

Beta = 130000 * $37 = $4,810,000

Solution 2:

Company’s total amount of common fixed expenses = 130000 * ($34 + $29) = $8,190,000

Solution 3:

Solution 4:

Solution 5a:

financial advantage (disadvantage) of accepting the new customer’s order = ($657,000)

Solution 5b:

As there is financial disadvantage on accepting special order, therefore special order should not be accepted.

Note: I have answered more than 4 parts of the question as per chegg policy, kindly post separate question for answer of remaining parts.

Computation of income from special order of Alpha Particulars Amount Sales (29000 * $156) $4,524,000.00 Relevant costs: Direct material (29000*$42) $1,218,000.00 Direct labor (29000*$42) $1,218,000.00 Variable manufacturing overhead (29000*$26) $754,000.00 Variable selling expenses (29000*$31) $899,000.00 Financial advantage (disadvantage) from new customer order $435,000.00

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