Question

Cane Company manufactures two products called Alpha and Beta that sell for $240 and $162, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 131,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha $ 35 48 27 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Beta $ 15 23 25 38 28 30 35 32 35 $212 $159 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. Required: 1. What is the total amount of traceable fixed manufacturing overhead for each of the two products? Alpha Beta $ 4,585,000 $ 4,978,000 Traceable fixed manufacturing overhead

Answer 1

1
Traceable fixed manufacturing overhead
Alpha	4585000	=131000*35
Beta	4978000	=131000*38
2
Total common fixed expenses	8515000	=131000*(35+30)
3
Incremental revenue	4800000	=30000*160
Less: Incremental costs
Direct materials	1050000	=30000*35
Direct labor	1440000	=30000*48
Variable manufacturing overhead	810000	=30000*27
Variable selling expenses	960000	=30000*32
Total Incremental costs	4260000
Financial advantage	540000
4
Incremental revenue	166000	=2000*83
Less: Incremental costs
Direct materials	30000	=2000*15
Direct labor	46000	=2000*23
Variable manufacturing overhead	50000	=2000*25
Variable selling expenses	56000	=2000*28
Total Incremental costs	182000
Financial (disadvantage)	(16000)