Chapter 12F G Saved 9 Required informatio The Foundational 15 [LO12-2, LO12-3, L

Question

Chapter 12F G Saved 9 Required informatio The Foundational 15 [LO12-2, LO12-3, LO12-4, LO12-5, LO12-6] The following information applies to the questions displayed below.] Part 9 of 15 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. lts average cost per unit for each product at this level of activity are given below: points Alpha Beta 32 $16 19 Print Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expens Common fixed expenses Total cost per unit 24 10 20 16 Reference 12 14 19 $121 $92 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 12-9 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. What is the financial advantage (disadvantage) of buying 84,000 units from the supplier instead of making those units? Financial (disadvantage) This is a numeric cell, so please enter numbers only

Explanation / Answer

9) Relevant Cost of producing Alpha = Direct Materials+Direct Labor+Variable MOH+Traceable Fixed MOH

= $32+$24+$10+$20 = $86 per unit

Cost of purchase from outside supplier = $96 per unit

As the cost of purchasing from outside supplier is more than relevant cost to produce by $10 per unit ($96 - $86), there is a disadvantage of buying 84,000 units.

Total Financial (disadvantage) = 84,000*$10 per unit = $840,000

Note: Common fixed expenses and variable selling expenses are not relevant for the decision.

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