Question
Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. Each product uses only one type of raw material
Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 107,000 units of each product. Its average cost per unit for each product at this level of activity are given below:
Alpha | Beta | |
---|---|---|
Direct materials | $ 30 | $ 10 |
Direct labor | 25 | 20 |
Variable manufacturing overhead | 12 | 10 |
Traceable fixed manufacturing overhead | 21 | 23 |
Variable selling expenses | 17 | 13 |
Common fixed expenses | 20 | 15 |
Total cost per unit | $ 125 | $ 91 |
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.
A. What is the total amount of traceable fixed manufacturing overhead for each of the two products?
B. What is the companys total amount of common fixed expenses?
C. Assume that Cane expects to produce and sell 95,000 Betas during the current year. One of Canes sales representatives has found a new customer who is willing to buy 5,000 additional Betas for a price of $44 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?
D. Assume that Cane normally produces and sells 45,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
E. Assume that Cane normally produces and sells 65,000 Betas and 85,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 20,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
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