5. Assume that Cane expects to produce and sell 107,000 Alphas during the curren

Question

5. Assume that Cane expects to produce and sell 107,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 22,000 additional Alphas for a price of $128 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 11,000 units. What is the financial advantage (disadvantage) of accepting the new customer’s order?

14. Assume that Cane’s customers would buy a maximum of 92,000 units of Alpha and 72,000 units of Beta. Also assume that the company’s raw material available for production is limited to 300,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?

15. Assume that Cane’s customers would buy a maximum of 92,000 units of Alpha and 72,000 units of Beta. Also assume that the company’s raw material available for production is limited to 300,000 pounds. If Cane uses its 300,000 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.)

Required information The Foundational 15 [LO12-2, LO12-3, LO12-4, LO12-5, LO12-6] [The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 118,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit $ 36 32 19 27 24 Alpha Beta $ 24 27 17 30 20 $165 $140 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

Explanation / Answer

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Part-5 Incremental Revenue A 22000*128 2816000 Incremental Variable Cost Direct Material 11000*36 396000 Direct Labor 11000*32 352000 Variable Manufacturing Overhead 11000*19 209000 Variable Selling Expense 11000*24 264000 Total Incremental Variable Cost B 1221000 Forgone sales to regular customer C 11000*180 1980000 Incremental Net Operating Income A-B-C -385000 Financial disadvantage of accepting the order -385000 Part-14 Alpha Beta Maximum Sale Units 92000 72000 Material needed per unit (36/6) and (24/6) A 6 4 Selling Price 180 145 Less: Variable Cost Direct Material 36 24 Direct Labor 32 27 Variable Manufacturing Overhead 19 17 Variable Selling Expense 24 20 Contribution Margin B 69 57 Contribution Margin per unit of Material B/A 11.5 14.25 Since Beta has higher Cont Margin per unit of Material, should produce maximum Beta Beta Units to be sold 72000 Per unit material needed 4 Total Material needed for Beta 72000*4 288000 Balance Material 300000-288000 12000 Alpha to be produced in 12000 Material 12000/6 2000 Alpha Beta Total Sale of Products 2000 72000 Contribution Margin per unit 69 57 Total Contribution margin 138000 4104000 4242000 Part-15 Since Beta units will be produced first from the existing material, additional material will be used for Alpha Existing Price 6 Contribution per unit of material 11.5 Maximum priceto be paid per pound 17.5

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