Required information Part 8 of 15 The Foundational 15 [LO12-2, L012-3, LO12-4, L

Question

Required information Part 8 of 15 The Foundational 15 [LO12-2, L012-3, LO12-4, L012-5, LO12-6 [The following information applies to the questions displayed below.] 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 average cost per unit for each product at this level of activity are given below: points Skippe Alpha Beta $ 32 $16 19 Direct materials Directlabor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 24 10 20 16 Print Reference 12 14 $121 $92 19 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 Foundational 12-8 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. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

Explanation / Answer

Alpha Beta Alpha Units 84000 64000 103000 Selling Price 140 100 140 Material 32 16 32 Labour 24 19 24 Variable o/h 10 9 10 Traceable fixed o/h 20 22 20 Variable Selling exp 16 12 16 Contribution per unit 38 22 38 Contribution 3192000 1408000 3914000 Fixed Expenses 1596000 896000 1596000 Net operating income 1596000 512000 2318000 Net Income Before = 1596000 + 512000 = 2108000 Net Income After = 2318000 Net Advantage = 2318000 - 210000 * Fixed exp = 84000 * 19 = 1596000 * Fixed exp = 64000 * 14 = 896000 2 Calculation of Variable cost of Alpha Material 32 Labour 24 Variable o/h 10 Traceable fixed o/h 20 Variable cost 86 offer price 96 Disadvantage per unit 10 Total Disadvantage 840000 3 Calculation of Variable cost of Alpha Material 32 Labour 24 Variable o/h 10 Traceable fixed o/h 20 Variable cost 86 offer price 96 Disadvantage per unit 10 Total Disadvantage 540000 Note: Common fixed cost would not be consider, it'll continue to be incurred either we have to produce the product or not

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