Chapter 12F 6 Saved 15 Required information The Foundational 15 [LO12-2, LO12-3,

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Chapter 12F 6 Saved 15 Required information The Foundational 15 [LO12-2, LO12-3, LO12-4, LO12-5, LO12-6] [The following information applies to the questions displayed below.] Part 15 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. 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 Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 24 Print 10 20 16 19 $121 Reference 12 14 $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 12-15 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. If Cane uses its 166,000 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.) Maximum price to be paid er pound

Explanation / Answer

Total available raw material is 166,000 pounds while total requirement is 464,000 pounds. Hence, the company will first produce the product that gives more contribution margin per pound of raw material to maximize its profit.

Product Beta that requires total of 128,000 pounds will be produced completely. Hence any additional raw material will be utilised for production of Product Alpha. The company will be willing to pay maximum of $22.50 (8+14.50) per pound of Raw Material.

Alpha Beta Demand (In Units) 84,000 64,000 Qty of Raw Material required per unit 4 2 Total Raw Material Requirement (in Pounds) 3,36,000 1,28,000

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