Question

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CHAPTER END REVIEW Best Sleep Company manufactures two mattress toppers called Alpha and Beta that sell for $210 and$172, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 128,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha $ 40 Beta $ 24 Direct materials 34 38 Direct labor 23 25 Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses 36 33 26 30 33 28 $ 171 $199 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 doll ars.

Answer 1

12)

	Alpha	Beta
Sales	$210	$172
Less: Variable costs
Direct materials	40	24
Direct labor	38	34
Variable manufacturing overhead	25	23
Variable selling expenses	30	26
Total variable costs	(133)	(107)
Contribution margin per unit	$77	$65
Pound per unit	(40/8)= 5	(24/8)= 3
Contribution margin per pound	$15.40	$21.67

13) As the Beta contribution margin per pound is greater than the Alpha so first we divide the limited pounds to Beta and then the remaining to Alpha.

	Pound	Unit
Beta	(78000*3)= 234000	78000 units
Alpha	(248000-234000)= 14000	(14000/5)= 2800 units

14) Maximum contribution margin company can earn given the limited quantity of raw materials= 78000*$65+2800*$77= $5285600

15) Maximum amount to be paid= Minimum contribution per pound+Per pound

= $15.40+8= $23.40