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The Foundational 15 (Algo) [LO11-2, LO11-3, LO11-4, LO11-5, LO11-6]

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Cane Company manufactures two products called Alpha and Beta that sell for $185 and $120, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 112,000 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	22	29
Variable manufacturing overhead	20	13
Traceable fixed manufacturing overhead	24	26
Variable selling expenses	20	16
Common fixed expenses	23	18
Total cost per unit	$ 139	$ 112

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.

Required:

1. What is the total amount of traceable fixed manufacturing overhead for each of the two products?

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

3. Assume that Cane expects to produce and sell 88,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 18,000 additional Alphas for a price of $112 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

4. Assume that Cane expects to produce and sell 98,000 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 $47 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?

5. Assume that Cane expects to produce and sell 103,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 18,000 additional Alphas for a price of $112 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 9,000 units.

a. What is the financial advantage (disadvantage) of accepting the new customers order?

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

6. Assume that Cane normally produces and sells 98,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

7. Assume that Cane normally produces and sells 48,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

8. Assume that Cane normally produces and sells 68,000 Betas and 88,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 12,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

9. Assume that Cane expects to produce and sell 88,000 Alphas during the current year. A supplier has offered to manufacture and deliver 88,000 Alphas to Cane for a price of $112 per unit. What is the financial advantage (disadvantage) of buying 88,000 units from the supplier instead of making those units?

10. Assume that Cane expects to produce and sell 58,000 Alphas during the current year. A supplier has offered to manufacture and deliver 58,000 Alphas to Cane for a price of $112 per unit. What is the financial advantage (disadvantage) of buying 58,000 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? (Round your answers to 2 decimal places.)

13. Assume that Canes customers would buy a maximum of 88,000 units of Alpha and 68,000 units of Beta. Also assume that the raw material available for production is limited to 172,000 pounds. How many units of each product should Cane produce to maximize its profits?

14. Assume that Canes customers would buy a maximum of 88,000 units of Alpha and 68,000 units of Beta. Also assume that the raw material available for production is limited to 172,000 pounds. What is the total contribution margin Cane Company will earn?

15. Assume that Canes customers would buy a maximum of 88,000 units of Alpha and 68,000 units of Beta. Also assume that the companys raw material available for production is limited to 172,000 pounds. If Cane uses its 172,000 pounds of raw materials, up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)