ine rowowing nrormation appues to ine quesions aispiayed DeNow. Cane Company man
ID: 2580592 • Letter: I
Question
ine rowowing nrormation appues to ine quesions aispiayed DeNow. 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 Part 10 of 15 Alpha Beta s 15 s 30 26 13 Direct materials Direct labor Variable nanufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 0.26 points 24 14 18 21 16 $102 $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 12-10 10. Assume that Cane expects to produce and sell 56,000 Alphas during the current year. A supplier has offered to manufacture and deliver 56,000 Alphas to Cane for a price of $104 per unit. What is the financial advantage (disadvantage) of buying 56,000 units from the supplier instead of making those units? Financial (disadvantage) Financial advantageExplanation / Answer
Relavent costs if Alpha's are manufactured - Direct materials, Direct labour, Variable manufacturing overhead and traceable fixed manufacturing overhead.
Costs if Alpha's are manufactured = (30 * 56,000) + (26 * 56,000) + (13 * 56,000) + (22 * 108,000)
= 1,680,000 + 1,456,000 + 728,000 + 2,376,000
= 6,240,000
Costs if Alpha's are purchased = 56,000 * 104 = 5,824,000
Financial advantage = 416,000 (6,240,000 - 5,824,000)
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