Cane Company manufactures two products called Alpha and Beta that sell for $125

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:

11. How many pounds of raw material are needed to make one unit of each of the two products?

12. What contribution margin per pound of raw material is earned by each of the two products? (Round your answers to 2 decimal places.)

Explanation / Answer

Answer:-11)-Raw material cost =$6 per pound

Direct Material cost per unit (Alpha) =$30 per unit

Pounds of raw material are needed to make one unit of Alpha:-

                                        = Direct Material cost per unit (Alpha)/ Raw material cost per pound

                                         =$30 per unit/$6 per pound =5 pounds

Pounds of raw material are needed to make one unit of Beta:-

                                        = Direct Material cost per unit (Beta)/ Raw material cost per pound

                                        =$12 per unit/$6 per pound = 2 pounds

Alpha            Beta

Pounds of raw material per unit              5                    2

12)-

Explanation:- Contribution margin per pound of raw material of Beta is higher than Alpha.Hence crane company should produce Beta product first.

Cane Company Contribution Margin Statement Products Alpha Beta $ $ Selling Price per Unit 125 85 Less:- Variable cost per unit Direct Materials 30 12 Direct Labor 21 20 Variable manufaturing overhead 8 6 Variable selling expenses 13 9 Contribution per unit 53 38 Pounds of Raw material per unit 5 2 Contribution margin per pound of raw material 10.6 19

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