Cane Company manufactures two products called Alpha and Beta that sell for $180
ID: 2749097 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 118,000 units of each product. Its unit costs for each product at this level of activity are given below:
Alpha
Beta
Direct materials
$
36
$
24
Direct labor
32
27
Variable manufacturing overhead
19
17
Traceable fixed manufacturing overhead
27
30
Variable selling expenses
24
20
Common fixed expenses
27
22
Total cost per unit
$
165
$
140
The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars.
11. How many pounds of raw material are needed to make one unit of Alpha and one unit of Beta?
12. What contribution margin per pound of raw material is earned by Alpha and Beta? (Round your answers to 2 decimal places.)
13. Assume that Cane’s customers would buy a maximum of 92,000 units of Alpha and 72,000 units of Beta. Also assume that the company’s raw material available for production is limited to 300,000 pounds. How many units of each product should Cane produce to maximize its profits?
14. Assume that Cane’s customers would buy a maximum of 92,000 units of Alpha and 72,000 units of Beta. Also assume that the company’s raw material available for production is limited to 300,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?
15. Assume that Cane’s customers would buy a maximum of 92,000 units of Alpha and 72,000 units of Beta. Also assume that the company’s raw material available for production is limited to 300,000 pounds. Up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)
Cane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 118,000 units of each product. Its unit costs for each product at this level of activity are given below:
Explanation / Answer
Answer:
11. Calculation of pounds of raw material are needed to make one unit of Alpha and one unit of Beta.
12) Calculation of Contribution Margin per poound of raw material earned by Alpha & Beta
13. Calculation of Number of Units of each product that should Cane produce to maximize its profit
Raw Material is limited = 300,000 Pounds
Raw Material Required to Make
92,000 units of Alpha = 92,000 x 6 Pounds = 552,000 Pounds
and 72,000 units of Beta = 72,000 x 4 pounds = 288,000 Pounds
Since the Raw Material quantity is limited to 300,000 Pounds, it is advised to CANE to make that product which has higher contribution margin per pound of raw material.
From the solution of 12, it is clear that Beta unit margin is higher than Alpha.. So to maximize profit CANE is requried to produce Beta Units First than from the balance Alpha...
Demand of Beta Unit = 72,000 units
Raw Material Required to produced 72,000 Units of Beta = 72,000 x 4 pounds = 288,000 Pounds
So easily CANE can produce 72,000 Units of Beta by using 288,000 Pounds of raw material..
Balance Raw Material left = 300,000 - 288,000 = 12,000 Pounds
By using 12,000 Pounds of Raw Material, CANE can make Alpha Unit
The Maximum Alpha Units can be produced by using 12,000 Pounds of Raw Material = 12,000 / 6 = 2,000 Units..
So, to maximise the profit CANE optimum production of units will be as follows:
Alpha Units = 2,000 Units
Beta Units = 72,000 Units
For solution of Q-14 & 15, p lease put seperate question because it is taking lot of time...
Particulars Alpha Beta A. Direct Material Cost Per Unit $36 $24 B. Raw material cost per pound $6 $6 C. Raw Material quantity needed in pounds for one unit (A / B) 6 Pounds 4 PoundsRelated Questions
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