Alpha:

Direct materials ......... $30

Direct labor.......... 20

Variable manufacturing overhead.... 7

Traceable fixed manufacturing overhead... 16

Variable selling expenses..... 12

Common fixed expenses...... 15

Total cost per unit....... 100

Beta:

Direct materials ......... $12

Direct labor.......... 15

Variable manufacturing overhead.... 5

Traceable fixed manufacturing overhead... 18

Variable selling expenses..... 8

Common fixed expenses...... 10

Total cost per unit....... 68

A and B sell for $120 and $80, respectively. Each product uses raw material that costs $6/pound. The company has the capacity to produce 100,000 units of each product annually.

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

2. What contribution margin per pound of raw material is earned by each of the two products?

3. Assume that customers would buy 80,000 Alpha units and 50,000 Beta units. Assume that the raw material available for production is limited to 200,000 pounds. How many units of each product should be produced to maximize profits?

4. If the company follows the recommendation per question 3, what total contribution margin will it earn?

5. If the company uses 160,00 pounds of raw materials per question 3, up to how much should it be willing to pay per pound for additional raw material?