Cane Company manufactures two products called Alpha and Beta that sell for $125
ID: 2560186 • Letter: C
Question
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:
Alpha Beta
Direct materials $ 30 $12
Direct labor 21 20
Variable manufacturing overhead 8 6
Traceable fixed manufacturing overhead 17 19
Variable selling expenses 13 9
Common fixed expenses 16 11
Total cost per unit $105 $77
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:
9. Assume that Cane expects to produce and sell 81,000 Alphas during the current year. A supplier has offered to manufacture and deliver 81,000 Alphas to Cane for a price of $84 per unit. What is the financial advantage (disadvantage) of buying 81,000 units from the supplier instead of making those units?
10. Assume that Cane expects to produce and sell 51,000 Alphas during the current year. A supplier has offered to manufacture and deliver 51,000 Alphas to Cane for a price of $84 per unit. What is the financial advantage (disadvantage) of buying 51,000 units from the supplier instead of making those units?
Explanation / Answer
Total Traceable fixed manufacturing cost of Alpha = $17 x 101,000 units
................................................................................= $1,717,000
9. Assume that Cane expects to produce and sell 81,000 Alphas during the current year. A supplier has offered to manufacture and deliver 81,000 Alphas to Cane for a price of $84 per unit. What is the financial advantage (disadvantage) of buying 81,000 units from the supplier instead of making those units?
The financial disadvantage of buying 81,000 units from the supplier instead of making those units is $308,000
10. Assume that Cane expects to produce and sell 51,000 Alphas during the current year. A supplier has offered to manufacture and deliver 51,000 Alphas to Cane for a price of $84 per unit. What is the financial advantage (disadvantage) of buying 51,000 units from the supplier instead of making those units?
The financial advantage of buying 51,000 units from the supplier instead of making those units is $442,000
For 81,000 units Particulars Manufacturing Cost Purchase Cost Purchase Cost ($84 x 81,000 units) $6,804,000 Direct Materials ($30 x 81,000 units) $2,430,000 Direct Labor ($21 x 81,000 units) $1,701,000 Variable manufacturing overhead ($8 x 81,000) $648,000 Traceable Fixed manufacturing cost $1,717,000 Variable Selling Expenses Total Cost $6,496,000 $6,804,000Related Questions
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