Question

Chapter 12F6 Saved Part 11 of 15 Required information The Foundational 15 [LO12-2, LO12-3, LO12-4, LO12-5, LO12-6) The following information applies to the questions displayed below.) points Cane Company manufactures two products called Alpha and Beta that sell for $150 and $110, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 108,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Skipped Alpha $ 30 26 13 Beta $ 15 22 11 24 eBook Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Print $130 $102 References 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 12-11 11. How many pounds of raw material are needed to make one unit of each of the two products? Bota Pounds of raw materials per unit materials per unit

Answer 1

Solution 11:

Pound of raw material per unit of Alpha = $30 / $5 = 6 pound

Pound of raw material per unit of Bets = $15 / $5 = 3 pound

Solution 14:

Computation of contribution margin per pound
Particulars	Alpha	Beta
Selling price per unit	$150.00	$110.00
Variable cost per unit:
Direct material	$30.00	$15.00
Direct labor	$26.00	$22.00
Variable manufacturing overhead	$13.00	$11.00
Variable selling expenses	$18.00	$14.00
Contribution margin per unit	$63.00	$48.00
Raw material required per unit (In pound)	6	3
Contribution margin per pound of material	$10.50	$16.00
Rank	2	1

As raw material quantity is limited, therefore raw material will be utilized first for product providing higher contribution margin per pound. Therefore nos of units of each product to be made to maximize profit;

Beta = 66000 units

Alpha = (210,000 - 66000*3) / 6 = 2000 units

maximum contribution margin Cane Company can earn given the limited quantity of raw materials = Contribution margin from alpha + Contribution margin from Beta

= (2000 * $63) + (66000*$48)

= $3,294,000

Solution 15:

As current available material is sufficient to meet total demand of Beta product. Therefore extra material will be utilized in production of Alpha Product.

Therefore maximum price that Cane company is willing to pay for additional pound of material = Regular price + Contribution margin per pound of alpha = $5 + $10.50 = $15.50