6 Required information The following information applies to the questions displa

Question

6 Required information The following information applies to the questions displayed below Cane Company manufactures two products called Alpha and Beta that sell for $135 and $95, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 105,000 units of each product. Its average cost per unit for each product at this level of activity are given below Part 6 of 15 Alpha Beta $ 30 $18 16 points Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 23 Print 19 21 15 13 References $115 $87 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. 6. Assume that Cane normally produces and sells 93,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? Required information The following information applies to the questions displayed below Cane Company manufactures two products called Alpha and Beta that sell for $135 and $95, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 105,000 units of each product. Its average cost per unit for each product at this level of activity are given below Part 7 of 15 Alpha Beta $ 30 $18 16 points Direct materials Direct labor Variable manufacturind overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 10 19 15 $115 Print 21 13 References 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 43,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

Explanation / Answer

Cane Company Make Buy Units 53000 53000 Cost of Buying $ 4,876,000.00 Direct Material(53000*$30) $ 1,590,000.00 Direct Labor(53000*$23) $ 1,219,000.00 Variable Manufcturing Overhead=(53000*$10) $      530,000.00 Traceable Fixed Manufcturing Overhead=(53000*$19) $ 1,007,000.00 Total Cost $ 4,346,000.00 $ 4,876,000.00 Differential Cost $      530,000.00 Cost of Buying is more than cost of Manufacturing so cane company should continue manufacture Alpha Units Note: common fixed cost is irrelevant for taking decision because it should be incurred even alpha units purchased from outside suppler. Variable selling expenses incurred in both cases at the time of sale so not relevant.

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