Question

Required information [The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $215 and $160, respectively. Each product uses only one type of raw material that costs $7 per pound. The company has the capacity to annually produce 125,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta $ 21 Direct materials $42 Direct labor 35 28 Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses 23 21 31 34 28 24 Common fixed expenses 31 26 $190 $154 Total cost per unit 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. 13. Assume that Cane's customers would buy a maximum of 96,000 units of Alpha and 76,000 units of Beta. Also assume that the company's raw material available for production is limited to 246,000 pounds. How many units of each product should Cane produce to maximize its profits? Alpha Beta Units produced

Answer 1

Contribution margin per pound

	Alpha	Beta
Contribution margin per unit	87	66
Pound per unit	6	3
Contribution margin per pound	14.5	22

13) Unit produced

	Alpha	Beta
Unit produced	(246000-228000)/6 = 3000	76000

14) Total Contribution margin = (3000*87+76000*66) = $5277000

15) Highest price = 7+14.50 = 21.50