0 14 Required information The Foundational 15 [LO12-2, LO12-3, LO12-4, LO12-5, L
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0 14 Required information The Foundational 15 [LO12-2, LO12-3, LO12-4, LO12-5, L012-6 The following information applies to the questions displayed below Part 14 of t5 Cane Company manufactures two products called Alpha and Beta that sell for $150 and $110, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 108,000 units of each product. Its average cost per unit for each product at this level of activity are given below 0.26 points Alpha Beta s 15 Direet materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Conmon fixed expenses Total cost per unit 5 30 26 13 24 14 16 102 18 $130 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. Foundational 12-14 14. Assume that Cane's customers would buy a maximum of 86,000 units of Alphe and 66,000 units of Beta. Also assume that the company's raw material available for production is limited to 210,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?Explanation / Answer
Direct material required per unit
Particulars
Alpha
Beta
Material cost
30
15
Per pound
5
5
No of pounds required per unit
6
3
Calculation of Contribution margin per pound of raw material
Particulars
Alpha
Beta
Selling price per unit
150
110
Less: Variable cost
Material cost
30
15
Direct labour
26
22
variable manf overheads
13
11
Variable selling expenses
18
14
Contribution per unit
63
48
No of pounds material required
6
3
Contribution margin per pound
10.5
16
Rank
2
1
Raw material available for production
210,000
Maximum demand for product beta
66,000 units
Material required for beta (66,000*3)
198000
Remaining material after beta production
will be used for alpha
12,000 pounds
Alpha maximum production (12,000/6)
2000 units
Calculation of optimal contribution margin
Particulars
Alpha
Beta
Production in units
2000
66000
Contribution per unit
63
48
Total contribution
126,000
3,168,000
Total contribution (126,000+3,168,000)
3,294,000
Direct material required per unit
Particulars
Alpha
Beta
Material cost
30
15
Per pound
5
5
No of pounds required per unit
6
3
Calculation of Contribution margin per pound of raw material
Particulars
Alpha
Beta
Selling price per unit
150
110
Less: Variable cost
Material cost
30
15
Direct labour
26
22
variable manf overheads
13
11
Variable selling expenses
18
14
Contribution per unit
63
48
No of pounds material required
6
3
Contribution margin per pound
10.5
16
Rank
2
1
Raw material available for production
210,000
Maximum demand for product beta
66,000 units
Material required for beta (66,000*3)
198000
Remaining material after beta production
will be used for alpha
12,000 pounds
Alpha maximum production (12,000/6)
2000 units
Calculation of optimal contribution margin
Particulars
Alpha
Beta
Production in units
2000
66000
Contribution per unit
63
48
Total contribution
126,000
3,168,000
Total contribution (126,000+3,168,000)
3,294,000
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