15 Required information The Foundational 15 [LO12-2, LO12-3, LO12-4, LO12-5, L01

Question

15 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 15 of 15 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 0.36 points Alpha Beta 5 30 15 Direct materiale Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Conmon fixed expenses Total cost per unit 26 13 18 21 130 24 14 16 $102 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 12-15 15. Assume that Cane's customers would buy a maximum of 86,000 units of Alpha and 66,000 units of Beta. Also assume that the company's raw material available for production is limited to 210,000 pounds. If Cane uses its 210,000 pounds of raw materials, up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)

Explanation / Answer

Maximum price to be paid per pound = $6.83

Alpha Beta Selling Price A 150 110 Direct material B 30 15 Direct labor C 26 22 Variable manufacturing overhead D 13 11 Traceable fixed manufacturing overhead E 22 24 Variable selling expenses F 18 14 Total traceable costs (B+C+D+E+F) G 109 86 Contribution margin (A - G) H 41 24 Cost per pound of raw material I $5.00 $5.00 Raw material per unit of product    (pound)   (B / I) J 6 3 Contribution margin per pound of direct material (H / J) K $       6.83 $       8.00 Maximum demand L 86000 66000 Direct material required for maximum demand (J x L) M 516000 198000 Allocation of available direct material * N 12000 198000 Production achieved with this allocation ( M / J ) O 2000 66000 Balance demand to be met (L - O ) P 84000 0 Contribution margin achievable for the balance (P x H) Q 3444000 Raw material required for the balance demand (P x J) R 504000 Price that can be paid for the balance direct material (Q / R) S $       6.83 * Since the contribution margin per pound is higher for Beta, the direct material is    first allocated to Beta and the balance is allocated to Alpha.

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