[The following information applies to the questions displayed below.] Cane Compa

Question

[The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $225 and $175, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 130,000 units of each product. Its unit costs for each product at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Alpha Beta $ 42$24 32 24 37 27 29 42 26 34 31 34 Total cost per unit $209 $173 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars

Explanation / Answer

10.

11.

Pound per unit=direct material/cost per pound

Alpha=42/$6=7 pound per unit

Beta=24/$6=4 pound per unit

12.

Contribution margin =sales -variable expenses

Contribution margin of:

Alpha= $215-($42+$42+26+31)=$84

Beta=$175-($24+32+24+27)=$68

Contribution margin per pound:

Alpha=$84/7=$12

Beta=$68/ 4=$17

13.

As contribution per pound of Beta is more so first Beta units are produced and remaining will be used to produced Alpha.

Pounds used for Beta (79000×4)=316,000 pounds

Remaining pounds(344,000-316,000)=28000 pounds

Alpha products able to be produced(28000 pounds/7 pound per unit)=4000 units

So company will produce 79000 units of Beta and 4000 units of Alpha.

Make(74000) Buy Cost of buying(74000×144) $11,544,000 Direct material(74000×$42) $3,108,000 Direct labour(74000×42) $3,108,000 Variable manufacturing overhead(74000×26) $1,924,000 Traceable fixed manufacturing overhead(130,000×$34) $4,420,000 Total cost $12,560,000 $11,544,000 Difference in favour of buying alpha from the suppliers $1,016,000

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