Question

Cane Company manufactures two products called Alpha and Beta that sell for $215 and $160, respectively. Each product uses only one type of raw material that costs $7 per pound. The company has the capacity to annually produce 125,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 42 $ 21 Direct labor 35 28 Variable manufacturing overhead 23 21 Traceable fixed manufacturing overhead 31 34 Variable selling expenses 28 24 Common fixed expenses 31 26 Total cost per unit $ 190 $ 154 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.

4. Assume that Cane expects to produce and sell 106,000 Betas during the current year. One of Cane’s sales representatives has found a new customer who is willing to buy 4,000 additional Betas for a price of $74 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

5. Assume that Cane expects to produce and sell 111,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 26,000 additional Alphas for a price of $144 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 12,000 units. a. What is the financial advantage (disadvantage) of accepting the new customer’s order? b. Based on your calculations above should the special order be accepted?

Assume that Cane normally produces and sells 106,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

Assume that Cane normally produces and sells 106,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

8. Assume that Cane normally produces and sells 76,000 Betas and 96,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 16,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

9. Assume that Cane expects to produce and sell 96,000 Alphas during the current year. A supplier has offered to manufacture and deliver 96,000 Alphas to Cane for a price of $144 per unit. What is the financial advantage (disadvantage) of buying 96,000 units from the supplier instead of making those units?

10. Assume that Cane expects to produce and sell 71,000 Alphas during the current year. A supplier has offered to manufacture and deliver 71,000 Alphas to Cane for a price of $144 per unit. What is the financial advantage (disadvantage) of buying 71,000 units from the supplier instead of making those units? 11. How many pounds of raw material are needed to make one unit of each of the two products?

11. How many pounds of raw material are needed to make one unit of each of the two products?

12. What contribution margin per pound of raw material is earned by each of the two products? (Round your answers to 2 decimal places.)

13. Assume that Cane’s customers would buy a maximum of 96,000 units of Alpha and 76,000 units of Beta. Also assume that the company’s raw material available for production is limited to 246,000 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 96,000 units of Alpha and 76,000 units of Beta. Also assume that the company’s raw material available for production is limited to 246,000 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 96,000 units of Alpha and 76,000 units of Beta. Also assume that the company’s raw material available for production is limited to 246,000 pounds. If Cane uses its 246,000 pounds of raw materials, up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)

Answer 1

4.

Calculation of cost to be incurred per unit of beta
Direct material	21
Direct labor	28
Variable manufacturing overhead	21
Variable selling expenses	24
Traceable fixed cost	34
Total cost to be incurred	128

Selling price = $74

advantage (disadvantage) per unit = sales price - cost to be incurred = 74 - 128 = ($ 54 )

Disavantage on accpetance of order = ($54) X 4000 =( $216000)

5.

Calculation of cost to be incurred per unit of alpha
Direct material	42
Direct labor	35
Variable manufacturing overhead	23
Traceable fixed cost	31
Variable selling expenses	28
Total cost to be incurred	159

Total cost to be incurred for 26000 units = 26000 X 159 = 4134000

Add: contribution to be lost for 12000 regular units = 12000 X (215-159) = 672000

Total cost = 48,06,000

Sales = 144X 26000 = 37,44,000

disadvantage = 3744000 - 4806000 = (1062000)

No special order shall not be accepted

6.

Calculation of total cost of 106000 beta
Particulars	Amount	working
Direct material	2,226,000	21X106000
Direct labor	2,968,000	28X106000
Variable manufacturing overhead	2,226,000	21X106000
Traceable fixed cost	3,604,000	34X106000
Variable selling expenses	2,544,000	24X106000
comon Fixed cost	3,250,000	26X125000
Total cost to be incurred	16,818,000
Sales = 160 X 106000 = 16960000
Advantage (disadvantage) on producing/continuing beta
= 16960000 - 16818000 = $142000

Hence, Disadvantage on discontinuing beta = $142000

8.

Calculation of profit on producing & selling 76000 beta and 96000 alpha
	Beta		Alpha		Total
Particulars	Amount	working	Amount	working
Sales	12160000	160*76000	20640000	215*96000
Total sales (a)	12160000		20640000
Direct material	1,596,000	21*76000	4,032,000	42*96000
Direct labor	2,128,000	28*76000	3,360,000	35*96000
Variable manufacturing overhead	1,596,000	21*76000	2,208,000	23*96000
Traceable fixed cost	2,584,000	34*76000	2,976,000	31*96000
Variable selling expenses	1,824,000	24*76000	2,688,000	28*96000
comon Fixed cost	3,250,000	26*125000	3,875,000	31*125000
Total cost to be incurred(b)	12,978,000		19,139,000
Profit = (a-b)	(818,000)		1,501,000		683,000

Calculation of profit on selling 112000 alpha
	Alpha
Particulars	Amount	working
Sales	24080000	215*112000
Total sales (a)	24080000
Direct material	4,704,000	42*112000
Direct labor	3,920,000	35*112000
Variable manufacturing overhead	2,576,000	23*112000
Traceable fixed cost	3,472,000	31*112000
Variable selling expenses	3,136,000	28*112000
comon Fixed cost	3,875,000	31*125000
Total cost to be incurred(b)	21,683,000
Profit(a-b)	2,397,000
Advantage of discontinuing beta = 2397000 - 683000 = 1714000

9.

Purchase price = $ 144

cost to be incurred , if manufactured (calculation in Part5) = $ 159

Profit in purchasing = 159 - 144 = $15

Advantage in purchase 96000 alphas = 15 X 96000 = 14,40000