Question

Required information [The following information applies to the questions displayed below.j Cane Company manufactures two products called Alpha and Beta that sell for $135 and $95, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 105,000 units of each product. Its average cost per unit for each product at this level of activity are given below Alpha Beta Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 30 23 10 19 15 18 $115 $18 16 21 13 $87 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

11. How many pounds of raw material are needed to make one unit of each of the two products?

12. What contribution margin per pound of raw material is earned by each of the two products? (Round your answers to 2 decimal places.)

13. Assume that Cane’s customers would buy a maximum of 83,000 units of Alpha and 63,000 units of Beta. Also assume that the company’s raw material available for production is limited to 200,000 pounds. How many units of each product should Cane produce to maximize its profits? Alpha? Beta?

14. Assume that Cane’s customers would buy a maximum of 83,000 units of Alpha and 63,000 units of Beta. Also assume that the company’s raw material available for production is limited to 200,000 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 83,000 units of Alpha and 63,000 units of Beta. Also assume that the company’s raw material available for production is limited to 200,000 pounds. If Cane uses its 200,000 pounds of raw materials, 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

11) The pounds of raw material per unit are computed as follows:

Alpha Beta

Direct material cost per unit (a) $30 $18

Cost per pound of directmaterials (b) $6 $6

Pounds of direct materials perunit (a) ÷ (b) 5 3

12) The contribution margins per pound of raw materials are computed asfollows:

Alpha Beta

Selling price pe unit 135 95

Less: Variable cost (78) (53)

( 30+23+10+15) (18+16+8+11)

Contribution per unit 57 42

Contribution margin per pound of raw material 11.4 (57/5) 14 (42/3)

13)  The optimal number of units to produce would be computed as follows:

Product Pounds per unit Units produced Total pounds

Alpha 5 2200 11000

Beta 3 63000 189000

Total pounds available 200,000

The company should produce Beta first because it earns the highestcontribution margin per pound of raw materials. After customer demand forBeta has been satisfied by producing 63,000 units, there are 11000 poundsof raw materials remaining to use for making Alphas. Since each Alpha requires 5 pounds of raw materials, the company would be able to produce2200 Alphas (11,000 pounds ÷ 5 pounds per unit) before running out of rawmaterials.

14)  The total contribution margin would be computed as follows:

Alpha Beta

Number of units produced 2200 63000

Contribution per unit 57 42

Total contribution 125400 2646000

The company’s total contribution margin would be 125400 + 2646000 = 2771400

15) The maximum price per pound is computed as follows:

Alpha

Regular directmaterial cost perpound (a) 6

Contributionmargin perpound of directmaterials (b) 11.4

Maximum priceto be paid perpound (a) + (b) 17.4

Because the company has satisfied all demand for Betas, it would useadditional raw materials to produce Alphas.