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 average cost per unit 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 unavoidable and have been allocated to products based on sales dollars.

1.

Assume that Cane expects to produce and sell 106,000 Betas during the current year. One of Canes sales representatives has found a new customer who is willing to buy 4,000 additional Betas for a price of $74 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

2. Assume that Cane normally produces and sells 106,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

3.

Assume that Cane expects to produce and sell 96,000 Alphas during the current year. A supplier has offered to manufacture and deliver 96,000 Alphas to Cane for a price of $144 per unit. What is the financial advantage (disadvantage) of buying 96,000 units from the supplier instead of making those units?

4.

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

5. What contribution margin per pound of raw material is earned by each of the two products? (Round your answers to 2 decimal places.)

	Alpha	Beta
Contribution margin per pound

6. Assume that Canes customers would buy a maximum of 96,000 units of Alpha and 76,000 units of Beta. Also assume that the companys raw material available for production is limited to 246,000 pounds. How many units of each product should Cane produce to maximize its profits?

	Alpha	Beta
Units produced