The Foundational 15 (Static) [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 $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The company 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:

	Alpha	Beta
Direct materials	$ 30	$ 12
Direct labor	20	15
Variable manufacturing overhead	7	5
Traceable fixed manufacturing overhead	16	18
Variable selling expenses	12	8
Common fixed expenses	15	10
Total cost per unit	$ 100	$ 68

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 11-8 (Static)

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?

10. Assume that Cane expects to produce and sell 50,000 Alphas during the current year. A supplier 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?