Cane Company manufactures two products called Alpha and Beta that sell for $130

Question

Cane Company manufactures two products called Alpha and Beta that sell for $130 and $90, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 102,000 units of each product. Its average cost per unit 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 unavoidable and have been allocated to products based on sales dollars.

Questions: (Please show all work/steps) 10. Assume that Cane expects to produce and sell 52,000 Alphas during the current year. A supplier has offered to manufacture and deliver 52,000 Alphas to Cane for a price of $88 per unit. What is the financial advantage (disadvantage) of buying 52,000 units from the supplier instead of making those units?

Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Alpha Beta $10 21 7 20 10 12 $ 25 17 18 14 17 $113 $ 80

Explanation / Answer

If Cane would manufacture Alpha, then EXTRA cost would be -

Direct material : 25/unit

Direct Labour : 22/unit

Variable manufacturing Overhead : 17/unit

Tracable fixed manufacturing overhead: 18/unit

Total extra cost : $ 82/unit

Since buying cost is $ 88/unit, Cane would go for making Alfa as much as possible.

Disadvantage from buying will be : (88-82)*52000 = $ 312,000

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.