Question

Cane Company manufactures two products called Alpha and Beta that sell for $140 and $100, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 106,000 units of each product. Its average cost per unit for each product at this level of activity are given below:

	Alpha				Beta
Direct materials		$	32			$	16
Direct labor			24				19
Variable manufacturing overhead			10				9
Traceable fixed manufacturing overhead			20				22
Variable selling expenses			16				12
Common fixed expenses			19				14
Total cost per unit		$	121			$	92

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.

1. What is the total amount of traceable fixed manufacturing overhead for each of the two products?

traceable fixed manufacturing overhead: Alphan and Beta

2. What is the company’s total amount of common fixed expenses?2. What is the company’s total amount of common fixed expenses?

3. Assume that Cane expects to produce and sell 84,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 14,000 additional Alphas for a price of $96 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

4. Assume that Cane expects to produce and sell 94,000 Betas during the current year. One of Cane’s sales representatives has found a new customer who is willing to buy 5,000 additional Betas for a price of $43 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

5. Assume that Cane expects to produce and sell 99,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 14,000 additional Alphas for a price of $96 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 7,000 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?

• Req 5A

What is the financial advantage (disadvantage) of accepting the new customer’s order?

Req 5B

Based on your calculations in req. 5a should the special order be accepted?

yes or no

6. Assume that Cane normally produces and sells 94,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

7. Assume that Cane normally produces and sells 44,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?8. Assume that Cane normally produces and sells 64,000 Betas and 84,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 19,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?.

8. Assume that Cane normally produces and sells 64,000 Betas and 84,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 19,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

9. Assume that Cane expects to produce and sell 84,000 Alphas during the current year. A supplier has offered to manufacture and deliver 84,000 Alphas to Cane for a price of $96 per unit. What is the financial advantage (disadvantage) of buying 84,000 units from the supplier instead of making those units?

10. Assume that Cane expects to produce and sell 54,000 Alphas during the current year. A supplier has offered to manufacture and deliver 54,000 Alphas to Cane for a price of $96 per unit. What is the financial advantage (disadvantage) of buying 54,000 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?

pounds of raw material: Alpha and Beta

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

contribution margin per pound: Alpha and Beta

13. Assume that Cane’s customers would buy a maximum of 84,000 units of Alpha and 64,000 units of Beta. Also assume that the raw material available for production is limited to 166,000 pounds. How many units of each product should Cane produce to maximize its profits?

Unit Product: Alpha and Beta

14. Assume that Cane’s customers would buy a maximum of 84,000 units of Alpha and 64,000 units of Beta. Also assume that the raw material available for production is limited to 166,000 pounds. What total contribution margin will it earn?

5. Assume that Cane’s customers would buy a maximum of 84,000 units of Alpha and 64,000 units of Beta. Also assume that the raw material available for production is limited to 166,000 pounds. If Cane uses its 166,000 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