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 Alpha $ 40 29 15 25 21 24 $154 Beta 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. 9. Assume that Cane expects to produce and sell 89,000 Alphas during the current year. A supplier has offered to manufacture and deliver 89,000 Alphas to Cane for a price of $116 per unit. What is the financial advantage (disadvantage) of buying 89,000 units from the supplier instead of making those units?

Explanation / Answer

Financial advantage/(disadvantage): Costs which can be avoided Direct matrials (89000*40) 3560000 Direct labor (89000*29) 2581000 Variable manufacturing overhead (89000*15) 1335000 Traceable fixed manufacturing overhead (113000*25) 2825000 Total 10301000 Less:purchase price (89000*116) 10324000 Financial (disadvantage) -23000

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