Question

5. Cane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 118,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 36 $ 24 Direct labor 32 27 Variable manufacturing overhead 19 17 Traceable fixed manufacturing overhead 27 30 Variable selling expenses 24 20 Common fixed expenses 27 22 Total cost per unit $ 165 $ 140 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. 5. Assume that Cane expects to produce and sell 107,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 22,000 additional Alphas for a price of $128 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 11,000 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?

6. Cane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 118,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 36 $ 24 Direct labor 32 27 Variable manufacturing overhead 19 17 Traceable fixed manufacturing overhead 27 30 Variable selling expenses 24 20 Common fixed expenses 27 22 Total cost per unit $ 165 $ 140 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 102,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? 7. Cane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 118,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 36 $ 24 Direct labor 32 27 Variable manufacturing overhead 19 17 Traceable fixed manufacturing overhead 27 30 Variable selling expenses 24 20 Common fixed expenses 27 22 Total cost per unit $ 165 $ 140 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 52,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? 8. Cane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 118,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 36 $ 24 Direct labor 32 27 Variable manufacturing overhead 19 17 Traceable fixed manufacturing overhead 27 30 Variable selling expenses 24 20 Common fixed expenses 27 22 Total cost per unit $ 165 $ 140 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.

8. Assume that Cane normally produces and sells 72,000 Betas and 92,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 12,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

9.  

Cane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 118,000 units of each product. Its average cost per unit for each product at this level of activity are given below:

	Alpha				Beta
Direct materials		$	36			$	24
Direct labor			32				27
Variable manufacturing overhead			19				17
Traceable fixed manufacturing overhead			27				30
Variable selling expenses			24				20
Common fixed expenses			27				22
Total cost per unit		$	165			$	140

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.

9. Assume that Cane expects to produce and sell 92,000 Alphas during the current year. A supplier has offered to manufacture and deliver 92,000 Alphas to Cane for a price of $128 per unit. What is the financial advantage (disadvantage) of buying 92,000 units from the supplier instead of making those units?

Answer 1