Question

FA Styles CHAPTER 12 FOUNDATIONAL PROBLEM The information in the first paragraph in the text is to be used to solve problems 1 through 15. The information regarding unit costs is substituted for the information given below. ALFA BETA Variable costs: Direct material. Direct labor. Variable manufacturing overhead.. ....... loo Variable selling expenses.. Total per unit variable cost $67 Traceable fixed manufacturing overhead cost 15 Common fixed cost......... ...14 The per unit fixed costs are based on production and sales of 100.000 units.

Answer 1

		Alpha	Beta
a	Direct Material	$27	$9
b	Direct Labour	$21	$18
c	Variable Manufacturing Overhead	$9	$6
d	Variable selling Overhead	$10	$6
e	Total Variable cost (a+b+c+d)	$67	$39
f	Traceble fixed cost	$15	$18
g	Total cost of the product excluding common fixed cost (e+f)	$82	$57
h	Annual capacity	100000	100000
i	Total specific fixed cost (f*h)	$1,500,000	$1,800,000
j	No of units if purchased outside	80000
k	Fixed cost per unit on production of 80000 of Alpha (i/j)	18.75
l	Total cost of the product by producing without purchasing (g-f+k)	$85.75
m	Cost of purchase of Alpha	$80
n	Difference	$5.75
o	No of units purchased outside	80000
p	Financial advantage (o*n)	$460,000.00
q	No of units if purchased outside (Second option)	50000
r	Fixed cost per unit on production of 50000 of Alpha	30
s	Total cost of the product by producing without purchasing (g-f+r)	$97
m	Cost of purchase of Alpha	$80
n	Difference	$17.00
o	No of units purchased outside	50000
p	Financial advantage (o*n)	$850,000.00
By purchasing the Alpha outside in first case as mentioned in 'P' the financial advantage is $4,60,000 where as in case of purchasing 50,000 units as mentioned in 'P' the financial adavantage is $8,50,000. So it is better to buy outside at this level of demand to avoid traceable fixed cost and save cost
11	Required pounds of raw material
		Alpha	Beta
a	Raw material cost	$27	$9
b	Per pound cost	$6	$6
c	No of pounds (a/b)	4.50	1.50
12	Contribution per pound of raw material
a	Selling price	$120	$80
b	Total variable cost (Refer section "e" of first part of answer	$67	$39
c	Contribution per unit	$53	$41
d	No of pounds required	4.50	1.50
e	Contribution per pound of raw material (c/d)	$11.78	$27.33