Reference no: EM133043681
Question - Cane Company manufactures two products called Alpha and Beta that sell for $210 and $172, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 128,000 units of each product. Its average cost per unit for each product at this level of activity are given below:
|
|
Alpha
|
Beta
|
|
Direct materials
|
$40
|
$24
|
|
Direct labor
|
38
|
34
|
|
Variable manufacturing overhead
|
25
|
23
|
|
Traceable fixed manufacturing overhead
|
33
|
36
|
|
Variable selling expenses
|
30
|
26
|
|
Common fixed expenses
|
33
|
28
|
|
Total cost per unit
|
$199
|
$171
|
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.
Required -
-Assume that Cane normally produces and sells 58,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
-Assume that Cane normally produces and sells 78,000 Betas and 98,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 11,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
-Assume that Cane's customers would buy a maximum of 98,000 units of Alpha and 78,000 units of Beta. Also assume that the raw material available for production is limited to 248,000 pounds. What is the total contribution margin Cane Company will earn?
-Assume that Cane's customers would buy a maximum of 98,000 units of Alpha and 78,000 units of Beta. Also assume that the company's raw material available for production is limited to 248,000 pounds. If Cane uses its 248,000 pounds of raw materials, up to how much should it be willing to pay per pound for additional raw materials?