Question

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 20 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 17 $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. 14. Assume that Cane's customers would buy a maximum of 81,000 units of Alpha and 61,000 units of Beta. Also assume that the company's raw material available for production is limited to 161,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials? Total contribution margin

Answer 1

Contribution margin per unit = Selling price per unit - Direct materials per unit + Direct labor per unit + Variable manufacturing overhead per unit + Variable selling expenses per unit

Alpha contribution margin per unit = $125 - $30 - $21 - $8 - $13 = $53

Contribution margin per pound = $53 / ($30/$6) = $10.6

Beta contribution margin per unit = $85 - $12 - $20 - $6 - $9 = $38

Contribution margin per pound = $38 / ($30/$12) = $15.2

Beta need to produced first at it gives more contribution margin per unit than Alpha

Total contribution margin = Beta + Alpha

= $2,318,000 (61,000*$38) + $90,100 [{161,000-(61,000*2.5)}/5 * $53]

= $2,408,100