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 $175 and $135, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117,000 units of each product. Its average cost per unit for each product at this level of activity are given below:

	Alpha	Beta
Direct materials	$ 40	$ 15
Direct labor	30	30
Variable manufacturing overhead	18	16
Traceable fixed manufacturing overhead	26	29
Variable selling expenses	23	19
Common fixed expenses	26	21
Total cost per unit	$ 163	$ 130

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.

Foundational 11-7 (Algo)

7. Assume that Cane normally produces and sells 51,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?