Cane Company manufactures two products called Alpha and Beta that sell for $240 and $162, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 131,000 units of each product. Its unit costs for each product at this level of activity are given below:

	Alpha				Beta
Direct materials		$	35			$	15
Direct labor			48				23
Variable manufacturing overhead			27				25
Traceable fixed manufacturing overhead			35				38
Variable selling expenses			32				28
Common fixed expenses			35				30
Total cost per unit		$	212			$	159

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.

Required:

1.	What is the total amount of traceable fixed manufacturing overhead for the Alpha product line and for the Beta product line?

.

2.	What is the companys total amount of common fixed expenses?

3.

Assume that Cane expects to produce and sell 100,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 30,000 additional Alphas for a price of $160 per unit. If Cane accepts the customers offer, how much will its profits increase or decrease?

4.

Assume that Cane expects to produce and sell 110,000 Betas during the current year. One of Canes sales representatives has found a new customer that is willing to buy 2,000 additional Betas for a price of $83 per unit. If Cane accepts the customers offer, how much will its profits increase or decrease?

5.

Assume that Cane expects to produce and sell 115,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 30,000 additional Alphas for a price of $160 per unit. If Cane accepts the customers offer, it will decrease Alpha sales to regular customers by 14,000 units.

a.	Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.)

b.

Based on your calculations above should the special order be accepted?

	Yes
	No

6.	Assume that Cane normally produces and sells 110,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

7.	Assume that Cane normally produces and sells 60,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

8.	Assume that Cane normally produces and sells 80,000 Betas and 100,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 13,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?

9.	Assume that Cane expects to produce and sell 100,000 Alphas during the current year. A supplier has offered to manufacture and deliver 100,000 Alphas to Cane for a price of $160 per unit. If Cane buys 100,000 units from the supplier instead of making those units, how much will profits increase or decrease?

10.

Assume that Cane expects to produce and sell 75,000 Alphas during the current year. A supplier has offered to manufacture and deliver 75,000 Alphas to Cane for a price of $160 per unit. If Cane buys 75,000 units from the supplier instead of making those units, how much will profits increase or decrease?

References

eBook & Resources

WorksheetLearning Objective: 10-03 Prepare a make or buy analysis.Learning Objective: 10-06 Determine the value of obtaining more of the constrained resource.

Difficulty: 2 MediumLearning Objective: 10-04 Prepare an analysis showing whether a special order should be accepted.

Learning Objective: 10-02 Prepare an analysis showing whether a product line or other business segment should be added or dropped.Learning Objective: 10-05 Determine the most profitable use of a constrained resource.

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 Canes customers would buy a maximum of 100,000 units of Alpha and 80,000 units of Beta. Also assume that the companys raw material available for production is limited to 261,000 pounds. How many units of each product should Cane produce to maximize its profits?

Required information

14.

Assume that Canes customers would buy a maximum of 100,000 units of Alpha and 80,000 units of Beta. Also assume that the companys raw material available for production is limited to 261,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?

15.

Assume that Canes customers would buy a maximum of 100,000 units of Alpha and 80,000 units of Beta. Also assume that the companys raw material available for production is limited to 261,000 pounds. Up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)