Question

The following information applies to the questions displayed below.]

Cane Company manufactures two products called Alpha and Beta that sell for $155 and $115, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 110,000 units of each product. Its unit costs for each product at this level of activity are given below:

	Alpha				Beta
Direct materials		$	24			$	12
Direct labor			23				26
Variable manufacturing overhead			22				12
Traceable fixed manufacturing overhead			23				25
Variable selling expenses			19				15
Common fixed expenses			22				17
Total cost per unit		$	133			$	107

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.

9.

Required information

9. Assume that Cane expects to produce and sell 87,000 Alphas during the current year. A supplier has offered to manufacture and deliver 87,000 Alphas to Cane for a price of $108 per unit. If Cane buys 87,000 units from the supplier instead of making those units, how much will profits increase or decrease?

10.

Required information

10. Assume that Cane expects to produce and sell 57,000 Alphas during the current year. A supplier has offered to manufacture and deliver 57,000 Alphas to Cane for a price of $108 per unit. If Cane buys 57,000 units from the supplier instead of making those units, how much will profits increase or decrease?

11.

Required information

11. How many pounds of raw material are needed to make one unit of Alpha and one unit of Beta?

12.

Required information

12. What contribution margin per pound of raw material is earned by Alpha and Beta? (Round your answers to 2 decimal places.)

Answer 1

1)

a)	If Cane buys 87,000 units from the supplier instead of making those units
	Profit
	Sales 87000 units @ 155 of Alphas	13,485,000
Less:-	Purchase cost of Alpha 87000 units @ 108	(9,396,000)
Less:-	Common fixed exp	(1,914,000)
	Profit	4,089,000
	Sales 87000 units @ 155 of Alphas	13,485,000
Less:-	Making cost of Alpha 87000 units @ 133	(11,571,000)
		1,914,000
	Profit	3,828,000

2)

b)	If Cane buys 57,000 units from the supplier instead of making those units
	Profit
	Sales 57000 units @ 155 of Alphas	8,835,000
Less:-	Purchase cost of Alpha 57000 units @ 108	(6,156,000)
Less:-	Common fixed exp	(1,254,000)
	Profit	2,679,000
	Sales 57000 units @ 155 of Alphas	8,835,000
Less:-	Making cost of Alpha 57000 units @ 133	(7,581,000)
		1,254,000
	Profit	2,508,000
	Increase in profit	171,000

3)
Raw material needed for making 1 unit of alpha= 4 units

Raw material needed for making 1 unit of beta= 2 units