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 unit costs 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 deemed unavoidable and have been allocated to products based on sales dollars.

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

12.	What contribution margin per pound of raw material is earned by Alpha and Beta? (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. 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

Solution:

11) Pounds of raw material needed per unit

	Alpha	Beta
Direct material cost per unit (A)	$42	$21
Cost per pound (B)	$7	$7
Pounds of raw material needed per unit (A/B)	6.00	3.00

12) Contribution margin per pound of raw material is earned by Alpha and Beta

	Alpha	Beta
Unit Selling Price (A)	$215	$160
Variable Cost per unit
Direct material cost per unit	$42	$21
Direct labor per unit	$35	$28
Variable manufacturing overhead per unit	$23	$21
Variable selling expenses per unit	$28	$24
Total Variable Cost per unit (B)	$128	$94
Contribution Margin per unit (A-B)	$87	$66
Pounds needed per unit	6 Pounds	3 Pounds
Contribution Margin per pound	$14.50 ($87 / 6)	$22.00 ($66 / 3)

13)

Calculation of Total Raw materials needed and total raw materials available

	Alpha	Beta	Total
Maximum Demand in Units	96,000	76,000
Raw material needed per unit	6 Pounds	3 Pounds
Total Raw material needed pounds	576000	228,000	804,000
Total Raw material available in pounds			246,000

Since the Contribution Margin per pound of raw material of product Beta is higher than Alpha, the company will make Beta product first and from balance raw material they will make Alpha to maximize profit.

Maximum Production Units of Beta = 76,000 Units

Balance Raw material available = 246,000 – (76,000*3) = 18,000 Pounds

Alpha Maximum production Units = 18,000 Pounds / 6 Pounds per unit = 3,000 Units

So, the Maximum Production Units to maximize the profit

Alpha = 3,000 Units

Beta = 76,000 Units

14)

Maximum Contribution Margin Can Company can earn is $5,277,000

	Alpha	Beta	Total
Maximum Units Production	3,000	76,000
Contribution Margin per unit (from part 12)	$87	$66
Total Maximum Contribution Margin	$261,000	$5,016,000	$5,277,000

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Pls ask separate question for remaining parts