Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below. Cane Company manufactures two products called Alpha and Beta that sell for $165 and $130, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 113,000 units of each product. Its average cost per unit 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 Total cost per unit $ 40 29 15 25 21 24 $154 $ 24 25 14 27 17 19 $126 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. 7. Assume that Cane normally produces and sells 49,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

Explanation / Answer

Per unit 49000 units Revenue 130 6370000 Variable costs: Direct materials 24 1176000 Direct labor 25 1225000 Variable manufacturing overhead 14 686000 Variable selling expenses 17 833000 Total variable expenses 80 3920000 Loss in contribution margin -2450000 Traceable fixed manufacturing overhead avoidable 3051000 Financial advantage(disadvantage) 601000

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