Cane Company manufactures two products called Alpha and Beta that sell for $140
ID: 2520960 • 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.
5. 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 that is willing to buy 14,000 additional Alphas for a price of $96 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 7,000 units.
a. Calculate the incremental net operating income if this order is accepted?
6.
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?
7.
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?
8.
Assume that Cane normally produces and sells 64,000 Betas and 84,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 19,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?
9.
Assume that Cane expects to produce and sell 84,000 Alphas during the current year. A supplier has offered to manufacture and deliver 84,000 Alphas to Cane for a price of $96 per unit. If Cane buys 84,000 units from the supplier instead of making those units, how much will profits increase or decrease?
10.
Assume that Cane expects to produce and sell 54,000 Alphas during the current year. A supplier has offered to manufacture and deliver 54,000 Alphas to Cane for a price of $96 per unit. If Cane buys 54,000 units from the supplier instead of making those units, how much will profits increase or decrease?
by?
11. How many pounds of raw material are needed to make one unit of Alpha and one unit of Beta?
12. What contribution margin per pound of raw material is earned by Alpha and Beta?
13.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?
14. 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. 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 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
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
Answer to 5. 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 that is willing to buy 14,000 additional Alphas for a price of $96 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 7,000 units.
a. Calculate the incremental net operating income if this order is accepted?
Sale Proceeds of 99000 Alphas = 99000 x $140
= $13860000
Cost of Goods sold = 99000 x $121
= $11979000
Operating Income = $13860000 - $11979000
= $1881000
Sale Proceeds of 14000 Alphas = 14000 x $96
= $1344000
Sale Proceeds of 92000 Alphas = 92000 x $140
= $12880000
Total Sales Proceeds = $1344000 = $12880000 = $14224000
Cost of Goods Sold of 106000 Alphas = $11979000 + (7000 x variable cost per unit i.e.$121-$20-$19)
= $11979000 + $574000 = $12553000
Operating Income After New Order = $14224000 - $12553000
= $1671000
Incremental Operating Income = $1671000 - $1881000 = -$21000
Hence there is a decrease in net operating income by $21000
6.
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?
Contribution = Sales - Variable Cost
= ($100 - $56) x 94000
= $4136000
7.
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?
Contribution = Sales - Variable Cost
= ($100 - $56) x 44000
= $1936000
8.
Assume that Cane normally produces and sells 64,000 Betas and 84,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 19,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?
Contribution = Sales - Variable Cost Alpha Beta
=($140 - $82) x 19000 = ($100 - $56) x 64000
= $1102000 = $2816000
9.
Assume that Cane expects to produce and sell 84,000 Alphas during the current year. A supplier has offered to manufacture and deliver 84,000 Alphas to Cane for a price of $96 per unit. If Cane buys 84,000 units from the supplier instead of making those units, how much will profits increase or decrease?
10.
Assume that Cane expects to produce and sell 54,000 Alphas during the current year. A supplier has offered to manufacture and deliver 54,000 Alphas to Cane for a price of $96 per unit. If Cane buys 54,000 units from the supplier instead of making those units, how much will profits increase or decrease?
by ($96 - $82) x 54000 = $756000
11. How many pounds of raw material are needed to make one unit of Alpha and one unit of Beta?
Raw Material Required $32/ $8 $16/$8
= 4 pounds = 2 pounds
12. What contribution margin per pound of raw material is earned by Alpha and Beta?
Sales - Variable Cost $140 - $82 $100 - $56
= $58 =$44
13.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?
Contribution per unit $58 $44
Raw Material consumption per unit 4 pounds 2 pounds
Contribution per key factor $14.50 $22
Raw Material consumption for Beta = 64000 x2 = 128000 pounds
Balance to be usd for Alpha = 166000 - 128000 = 38000
alpha
38000/4 = 9500 units
14. 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. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?
Contribution for Alpha = 9500 x $58 = $551000
Cpntribution for Beta = 64000 x $44 = $2816000
15. 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
Additonal Raw material required = (84000 - 9500) x 4 = 298000 pounds
$8 + ($140-$121) = $27 per pound for additional raw material to recover its fixed overheads
incremental net operating incomeSale Proceeds of 99000 Alphas = 99000 x $140
= $13860000
Cost of Goods sold = 99000 x $121
= $11979000
Operating Income = $13860000 - $11979000
= $1881000
Sale Proceeds of 14000 Alphas = 14000 x $96
= $1344000
Sale Proceeds of 92000 Alphas = 92000 x $140
= $12880000
Total Sales Proceeds = $1344000 = $12880000 = $14224000
Cost of Goods Sold of 106000 Alphas = $11979000 + (7000 x variable cost per unit i.e.$121-$20-$19)
= $11979000 + $574000 = $12553000
Operating Income After New Order = $14224000 - $12553000
= $1671000
Incremental Operating Income = $1671000 - $1881000 = -$21000
Hence there is a decrease in net operating income by $21000
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