Cane Company manufactures two products called Alpha and Beta that sell for $170 and $130, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 116,000 units of each product. Its unit costs for each product at this level of activity are given below:

	Alpha				Beta
Direct materials		$	30			$	18
Direct labor			30				25
Variable manufacturing overhead			20				15
Traceable fixed manufacturing overhead			26				28
Variable selling expenses			22				18
Common fixed expenses			25				20
Total cost per unit		$	153			$	124

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.

7.	Assume that Cane normally produces and sells 50,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

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WorksheetFoundational 12-7

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Foundational 12-8

8.	Assume that Cane normally produces and sells 70,000 Betas and 90,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 14,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?

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WorksheetFoundational 12-8

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Foundational 12-9

9.	Assume that Cane expects to produce and sell 90,000 Alphas during the current year. A supplier has offered to manufacture and deliver 90,000 Alphas to Cane for a price of $120 per unit. If Cane buys 90,000 units from the supplier instead of making those units, how much will profits increase or decrease?

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WorksheetFoundational 12-9

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Foundational 12-10

10.

Assume that Cane expects to produce and sell 60,000 Alphas during the current year. A supplier has offered to manufacture and deliver 60,000 Alphas to Cane for a price of $120 per unit. If Cane buys 60,000 units from the supplier instead of making those units, how much will profits increase or decrease?

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WorksheetFoundational 12-10

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Foundational 12-11

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

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WorksheetFoundational 12-11

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Foundational 12-12

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

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WorksheetFoundational 12-12

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Foundational 12-13

13.	Assume that Canes customers would buy a maximum of 90,000 units of Alpha and 70,000 units of Beta. Also assume that the companys raw material available for production is limited to 221,000 pounds. How many units of each product should Cane produce to maximize its profits?

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WorksheetFoundational 12-13

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Foundational 12-14

14.

Assume that Canes customers would buy a maximum of 90,000 units of Alpha and 70,000 units of Beta. Also assume that the companys raw material available for production is limited to 221,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?

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WorksheetFoundational 12-14

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Foundational 12-15

15.

Assume that Canes customers would buy a maximum of 90,000 units of Alpha and 70,000 units of Beta. Also assume that the companys raw material available for production is limited to 221,000 pounds. Up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)