contain viruses. Unless you need to edit, it's safer to stay in Protected View Enable Editing CHAPTER 12 FOUNDATIONAL PROBLEM The information in the first paragraph in the text is to be used to solve problems 1 through 15. The information regarding unit costs is substituted for the information given below. ALFA BETA Variable costs: Direct material. Direct labor........ Variable manufacturing overhead............. Variable selling expenses...... Total per unit variable cost 15 Traceable fixed manufacturing overhead cost Common fixed cost......... The per unit fixed costs are based on production and sales of 100,000 units. Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The com- pany has the capacity to annually produce 100,000 units of each product. Its average cost per unit for each product at this level of activity are given below: (Answer each question independently unless instructed otherwise.) 1. What is the total amount of traceable fixed manufacturing overhead for each of the two products? 2. What is the company's total amount of common fixed expenses? 3. Assume that Cane expects to produce and sell 80.000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 10,000 additional Alphas for a price of $80 per unit. What is the financial advantage (disadvantage) of accepting! the new customer's order? 4. Assume that Cane expects to produce and sell 90.000 Betas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 5,000 additional Betas for a price of $39 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order? 5. Assume that Cane expects to produce and sell 95,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 10,000 additional Alphas for a price of $80 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 5,000 units. What is the financial advantage (disadvantage) of accepting the new customer's order? 6. Assume that Cane normally produces and sells 90,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? 7. Assume that Cane normally produces and sells 40,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? 8. Assume that Cane normally produces and sells 60,000 Betas and 80,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 15.000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line? 9. Assume that Cane expects to produce and sell 80,000 Alphas during the current year. A supplier has offered to manufacture and deliver 80,000 Alphas to Cane for a price of $80 per unit. What is the financial advantage (disadvantage) of buying 80,000 units from the supplier instead of making those units? Assume that Cane expects to produce and sell 50,000 Alphas during the current year. A sup- plier has offered to manufacture and deliver 50,000 Alphas to Cane for a price of $80 per unit. What is the financial advantage (disadvantage) of buying 50,000 units from the supplier instead of making those units? 11. How many pounds of raw material are needed to make one unit of each of the two products? 12. What contribution margin per pound of raw material is earned by each of the two products? 13. Assume that Cane's customers would buy a maximum of 80,000 units of Alpha and 60,000 units of Beta. Also assume that the raw material available for production is limited to 160.000 pounds. How many units of each product should Cane produce to maximize its profits? 14. If Cane follows your recommendation in requirement 13, what total contribution margin will it earn? 15. If Cane uses its 160,000 pounds of raw materials as you recommended in requirement 13. up to how much should it be willing to pay per pound for additional raw materials? 10. AS
