1) Assume that Cane’s customers would buy a maximum of 81,000 units of Alpha and
ID: 2530174 • Letter: 1
Question
1) Assume that Cane’s customers would buy a maximum of 81,000 units of Alpha and 61,000 units of Beta. Also assume that the company’s raw material available for production is limited to 161,000 pounds. How many units of each product should Cane produce to maximize its profits?
2) Assume that Cane’s customers would buy a maximum of 81,000 units of Alpha and 61,000 units of Beta. Also assume that the company’s raw material available for production is limited to 161,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?
3) Assume that Cane’s customers would buy a maximum of 81,000 units of Alpha and 61,000 units of Beta. Also assume that the company’s raw material available for production is limited to 161,000 pounds. If Cane uses its 161,000 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.)
Cane Company manufactures two products called Alpha and Beta that sell for $125 and $85, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 101,000 units of each product. Its average cost per unit for each product at this level of activity are given below: AlphaBeta $12 20 $ 30 21 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses 19 17 13 16 $105 $77 Total cost per unit 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 dollarsExplanation / Answer
Total available raw material is 161,000 pounds while total requirement is 527,000 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 122,000 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 $16.60 (6+10.60) per pound of Raw Material.
Alpha Beta Demand (In Units) 81,000 61,000 Qty of Raw Material required per unit 5 2 Total Raw Material Requirement (in Pounds) 4,05,000 1,22,000Related Questions
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