Cane Company manufactures two products called Alpha and Beta that sell for $165

Question

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 unit costs for each given below product at this level of activity are Alpha Beta $ 40 24 25 14 Traceable fixed manufacturing overhead 25 27 17 19 Direct materials Direct labor Variable manufacturing overhead 29 15 Variable selling expenses Common fixed expenses 21 24 Total cost per unit $154 $126 facturing overhead to be avoidable, whereas its common The company considers its traceable fixed manu fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars Required: Assume that Cane's customers Also assume that the company's raw material available for production is limited to 220,000 pounds the maximum contribution margin Cane Company can earn given the limited quantity of raw materials? would buy a maximum of 89,000 units of Alpha and 69,000 units of Beta r What is Total Contribution Margin References eBook & Resources Worksheet Difficulty: Medium Learning I'm Cortana. Ask me anything

Explanation / Answer

Answer for question no.1:

Therefore total constribution earned=$3,606,000.

Answer for question no.2:

Maximum price that can be paid for additional pound of raw material is the contribution earned per pound of raw material and in the current case it is $14.

Particulars Alpha Beta Sale price(A) $165.00 $130.00 Direct materials $40.00 $24.00 Direct labour $29.00 $25.00 Variable manufacturing overhead $15.00 $14.00 Variable selling expenses $21.00 $17.00 Total variable cost(B) $105.00 $80.00 Contribution (C )=(A)-(B) $60.00 $50.00 Sales capacity 89000 69000 Pounds consumed for production (D) 5 3 Contribution earned per pound(E )=(C )/((D) $12.00 $16.67

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