Cane Company manufactures two products called Alpha and Beta that sell for $195

Question

Cane Company manufactures two products called Alpha and Beta that sell for $195 and $150, respectively. Each product uses only one type of raw materlal that costs $5 per pound. The company has the capacity to annually produce 123,000 units of each product. Its unit costs for each product at this level of activity are given below Alpha Beta $40 $15 28 Direct materlals Direct labor Varlable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses 34 30 27 30 23 25 Total cost per unit $183 $144 The company conslders its traceable fixed manufacturing overhead to be avoldable, whereas Its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars. 12. What contribution margin per pound of raw material is earned by Alpha and Beta? (Round your answers to 2 decimal places.) Alpha Beta Contribution margin per poun 13. Assume that Cane's customers would buy a maximum of 95,000 units of Alpha and 75,000 units of Beta. Also assume that the company's raw material available for production is limited to 245,000 pounds. How many units of each product should Cane produce to maximize its profits? Alpha Beta Units produced 14. Assume that Cane's customers would buy a maximum of 95,000 units of Alpha and 75,000 units of Beta. Also assume that the company's raw material available for production is limited to 245,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials? Total contribution margin 15. Assume that Cane's customers would buy a maximum of 95,000 units of Alpha and 75,000 units of Beta. Also assume that the company's raw material available for production is limited to 245,000 pounds. 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 per pound

Explanation / Answer

Part-12 Contribution Margin per pound of raw material Material needed per unit (40/5) and (15/5) A 8 3 Selling Price 195 150 Less: Variable Cost Direct Material 40 15 Direct Labor 34 28 Variable Manufacturing Overhead 22 20 Variable Selling Expense 27 23 Contribution Margin B 72 64 Contribution Margin per unit of Material B/A 9 21.3 Part-13 Alpha Beta Maximum Sale Units 95000 75000 Contribution Margin per unit of Material B/A 9 21.3 Since Beta has higher Cont Margin per unit of Material, should produce maximum Beta Beta Units to be sold 75000 Per unit material needed 3 Total Material needed for Beta 75000*3 225000 Balance Material 245000-225000 20000 Alpha to be produced in 20000 Material 20000/8 2500 Part-14 Alpha Beta Total Sale of Products 2500 75000 Contribution Margin per unit 72 64 Total Contribution margin 180000 4800000 4980000 Part-15 Since Beta units will be produced first from the existing material, additional material will be used for Alpha Existing Price 5 Contribution per unit of material 9 Maximum priceto be paid per pound 14

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