Question

Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 107,000 units of each product. Its unit costs for each product at this level of activity are given below:

	Alpha				Beta
Direct materials		$	30			$	10
Direct labor			25				20
Variable manufacturing overhead			12				10
Traceable fixed manufacturing overhead			21				23
Variable selling expenses			17				13
Common fixed expenses			20				15
Total cost per unit		$	125			$	91

The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars.

1.	What is the total amount of traceable fixed manufacturing overhead for the Alpha product line and for the Beta product line?

2.	What is the company’s total amount of common fixed expenses?

       

3.

Assume that Cane expects to produce and sell 85,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 15,000 additional Alphas for a price of $100 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?

        

4.

Assume that Cane expects to produce and sell 95,000 Betas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 5,000 additional Betas for a price of $44 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?

       

5.

Assume that Cane expects to produce and sell 100,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 15,000 additional Alphas for a price of $100 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 8,000 units.

a.	Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.)

           

b.	Based on your calculations above should the special order be accepted?
	YesNo

6.	Assume that Cane normally produces and sells 95,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

7.	Assume that Cane normally produces and sells 45,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

8.	Assume that Cane normally produces and sells 65,000 Betas and 85,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 20,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?

9.	Assume that Cane expects to produce and sell 85,000 Alphas during the current year. A supplier has offered to manufacture and deliver 85,000 Alphas to Cane for a price of $100 per unit. If Cane buys 85,000 units from the supplier instead of making those units, how much will profits increase or decrease?

       

10.

Assume that Cane expects to produce and sell 55,000 Alphas during the current year. A supplier has offered to manufacture and deliver 55,000 Alphas to Cane for a price of $100 per unit. If Cane buys 55,000 units from the supplier instead of making those units, how much will profits increase or decrease?

11.	How many pounds of raw material are needed to make one unit of Alpha and one unit of Beta?

  

12.	What contribution margin per pound of raw material is earned by Alpha and Beta? (Round your answers to 2 decimal places.)

       

13.	Assume that Cane’s customers would buy a maximum of 85,000 units of Alpha and 65,000 units of Beta. Also assume that the company’s raw material available for production is limited to 166,000 pounds. How many units of each product should Cane produce to maximize its profits?

  

14.

Assume that Cane’s customers would buy a maximum of 85,000 units of Alpha and 65,000 units of Beta. Also assume that the company’s raw material available for production is limited to 166,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?

        

15.

Assume that Cane’s customers would buy a maximum of 85,000 units of Alpha and 65,000 units of Beta. Also assume that the company’s raw material available for production is limited to 166,000 pounds. Up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)

Answer 1

1)Traceable manufacturing overhead for Alpha = 107000*21= 2247000

Traceable manufacturig overhead for Beta = 107000*23 = 2461000

2) company’s total amount of common fixed expenses =107000[20+15]= 3745000

3)variable cost of Alpha = 30+25+12+17= 84 per unit

Increase in profit /(loss) per unit =price offered - variable cost

                = 100 -84

                 = 16

Increase in total profit = 16* 15000 = $ 240000

4)variable cost of beta= 10+20+10+13=53

Increase in profit /(loss) per unit =price offered - variable cost

                = 44-53

                 = (9)

Increase/(decrease) in total profit = -9 * 5000 = $ - 45000 decrease

Answer 2

1. Calculate the total amount of traceable fixed manufacturing overhead as shown below: Details Alpha Beta Number of units [a] Traceable fixed manufacturing overhead per unit [b Total Traceable fixed manufacturing overhead [a x b]S 2,247,000S 2,461,000 107,000 23 107,000 21 S 2. Calculate the total amount of common fixed expenses as shown below: AlphaBeta Details Number of units [cl Traceable fixed manufacturing overhead per unit [d]S Total Traceable fixed manufacturing overhead [c x d]S 2,140,000 S 1,605,000 107,000107,000 15 20 $

3. Calculate the additional profit on sale of additional Alphas as shown below: Details Computation Amount Sales Less: Variable expenses Direct material Direct labor Variable manufacturing overhead 15.000 units × $ 12 per unit Variable selling expenses Additional profit 15,000 units x S 100 per unit 1,500,000 15,000 units x $ 30 per unit 15,000 units × $ 25 per unit 450,000 | $ 375,000 180.000 ! $ 15,000 units x S 17 per unit 255.000 240,000 Thus, the profit increases by S 240,000 4. Calculate the additional profit or loss on sale of additional Betas as shown below: Details Computation Amount $ 220.000 Sales Less: Variable expenses Direct material Direct labor Variable manufacturing overhead 5.000 units x $ 10 per unit 50.000 Variable selling expenses Additional profit / (loss) 5,000 units x 44 per unit 5,000 units x $ 10 per unit 5,000 units x $ 20 per unit $50,000 S 100,000 5,000 units x S 13 per unit $65.000 45,000 Thus, the profits decrease by S 45,000