Cane Company manufactures two products called Alpha and Beta that sell for $210

Question

Cane Company manufactures two products called Alpha and Beta that sell for $210 and $172, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 128,000 units of each product. Its average cost per unit for each product at this level of activity are given below:

A. Assume that Cane’s customers would buy a maximum of 98,000 units of Alpha and 78,000 units of Beta. Also assume that the company’s raw material available for production is limited to 248,000 pounds. How many units of each product should Cane produce to maximize its profits?

B. . Assume that Cane’s customers would buy a maximum of 98,000 units of Alpha and 78,000 units of Beta. Also assume that the company’s raw material available for production is limited to 248,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?

C. Assume that Cane’s customers would buy a maximum of 98,000 units of Alpha and 78,000 units of Beta. Also assume that the company’s raw material available for production is limited to 248,000 pounds. If Cane uses its 248,000 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.)

Alpha Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Beta 24 34 23 36 26 28 $171 $ 40 38 25 30 $199

Explanation / Answer

ans) computation of contribution margin per unit:

Alpha Beta

Selling price 210 172

Less: variable costs

Direct materials (40) (24)

Direct labour (38) (34)

Variable manufacturing overhead (25) (23)

Variable selling expenses (30) (26)

contribution margin 77 65  

No.of pounds per unit 5 (40/8) 3 (24/8)

Contribution margin per pound 15.4 (77/4) 21.67 (65/3)

A) Computation of number of units to be produced

Product PoundsPerUnit UnitProduced TotalPounds

Beta 3 78000 234000

Alpha 5 2800*   14000

248000

248000 - 234000 = 14000 pounds available

No.of units of alpha = 14000 / 5 = 2800 units

The company should produce Beta first because it earns the highestcontribution margin per pound of raw materials. After customer demand forBeta has been satisfied by producing 78000 units, there are 14,000 poundsof raw materials remaining to use for making Alphas. Since each Alpha requires 5 pounds of raw materials, the company would be able to produce2800 Alphas (14,000 pounds ÷ 5 pounds per unit) before running out of rawmaterials.

B) The total contribution margin would be computed as follows:

Alpha Beta

Number of units produced 2800 78000

Contribution margin per unit 77 65

Total contribution 215600 5070000

The company's total contribution margin will be 5285600 (215600 + 5070000)

C)

The maximum price per pound is computed as follows:

Alpha

Regular directmaterial cost perpound $8.00

Contributionmargin perpound of directmaterials 15.4

Maximum priceto be paid perpound $23.40

Because the company has satisfied all demand for Betas, it would use additional raw materials to produce Alphas.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.