Cane Company manufactures two products called Alpha and Beta that sell for $185
ID: 2597236 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $185 and $150, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 119,000 units of each product. Its average cost per unit for each product at this level of activity are given below:
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 93,000 Alphas during the current year. A supplier has offered to manufacture and deliver 93,000 Alphas to Cane for a price of $132 per unit. What is the financial advantage (disadvantage) of buying 93,000 units from the supplier instead of making those units?
10. Assume that Cane expects to produce and sell 68,000 Alphas during the current year. A supplier has offered to manufacture and deliver 68,000 Alphas to Cane for a price of $132 per unit. What is the financial advantage (disadvantage) of buying 68,000 units from the supplier instead of making those units?
12. What contribution margin per pound of raw material is earned by each of the two products? (Round your answers to 2 decimal places.)
Alpha Beta Direct materials $ 40 $ 24 Direct labor 33 28 Variable manufacturing overhead 20 18 Traceable fixed manufacturing overhead 28 31 Variable selling expenses 25 21 Common fixed expenses 28 23 Total cost per unit $ 174 $ 145Explanation / Answer
9) Table showing cost of buying and making Alphas (per unit) (Amount in $)
Financial disadvantage of buying 93,000 units from Supplier over making it = (132-121)*93,000 = $1,023,000
10) Financial disadvantage of buying 68,000 units from supplier = (132-121)*68,000 = $748,000
11) Calculation of contribution per pound of raw material (Amount in $)
Particulars Make Buy Cost of Purchase from supplier 132 Direct materials 40 Direct Labor 33 Variable manufacturing overhead 20 Traceable fixed manufacturing overhead 28 Total Cost 121 132Related Questions
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