Question

e-Lab Assignment Saved Required information [The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $125 and $85, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 101,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha $ 30 Beta $12 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 19 16 $105 $77 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. 9. Assume that Cane expects to produce and sell 81,000 Alphas during the current year. A supplier has offered to manufacture and deliver 81,000 Alphas to Cane for a price of $84 per unit. What is the financial advantage (disadvantage) of buying 81.000 units from the supplier instead of making those units? < Prev 10 ☺ - 15 of 15 = Next >

Answer 1

	Alpha
Variable manufacturing costs:
Direct materials	30
Direct labor	21
Variable manufacturing overhead	8
Variable manufacturing costs per unit	59
Total Variable manufacturing costs	4779000	=81000*59
Avoidable fixed manufacturing overhead	1717000	=101000*17
Purchase cost from supplier	-6804000	=81000*84
Net change in income	-308000
Financial (disadvantage) (308000)