Question

I really need a help please. Thank you.

Required information The Foundational 15 (LO11-2, LO11-3, LO11-4, LO11-5, LO11-6) The following information applies to the questions displayed below.) Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Beta Alpha $ 30 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 26 15 $100 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.

Answer 1

8.
	Alpha	Beta
Direct materials	30	12
Direct labor	20	15
Variable manufacturing overhead	7	5
Variable selling expenses	12	8
Variable cost per unit	69	40

	Alpha	Beta
Traceable fixed manufacturing overhead	1600000 [ 16 * 100000 ]	1800000 [ 18 * 100000 ]

	Beta
Sales ( 60000 * 80 )	4800000
(-) Variable cost ( 60000 * 40 )	2400000
(-) Traceable fixed manufacturing overhead	1800000
Net income lost by discontinuing Beta	600000
	Alpha
Sales ( 15000 * 120 )	1800000
(-) Variable cost ( 15000 * 69 )	1035000
Contribution margin earned from increase sales of Alpha	765000
Contribution margin earned from increase sales of Alpha	765000
(-) Net income lost by discontinuing Beta	600000
Financial advantage	165000

	Alpha
	Make	Buy
Direct materials ( 80000 * 30 )	2400000
Direct labor ( 80000 * 20 )	1600000
Variable manufacturing overhead ( 80000 * 7 )	560000
Traceable fixed manufacturing overhead	1600000
Cost of purchase ( 80000 * 80 )		6400000
Total cost	6160000	6400000

Total cost to make	6160000
(-) Total cost to Buy	6400000
Financial Disadvantage	(240000)

10.
	Alpha
	Make	Buy
Direct materials ( 50000 * 30 )	1500000
Direct labor ( 50000 * 20 )	1000000
Variable manufacturing overhead ( 50000 * 7 )	350000
Traceable fixed manufacturing overhead	1600000
Cost of purchase ( 50000 * 80 )		4000000
Total cost	4450000	4000000

Total cost to make	4450000
(-) Total cost to Buy	4000000
Financial advantage	450000

11.
	Alpha	Beta
Pounds of raw materials per unit ( Direct materials cost per unit / Direct materials cost per pound )	5	2

12.
	Alpha	Beta
Direct materials	30	12
Direct labor	20	15
Variable manufacturing overhead	7	5
Variable selling expenses	12	8
Total variable cost per unit	69	40
	Alpha	Beta
Selling price	120	80
(-) Total variable cost per unit	69	40
Contribution margin per unit	51	40
(/) Pounds per unit	5	2
Contribution margin per pound	10.20	20.00

13.
As the contribution margin per pound of Beta is greater, Cane will produced Beta first and then Alpha
	Alpha	Beta
Pounds per unit	5	2
(*) Demand in units	80000	60000
Total pounds required for production	400000	120000

Pounds of raw materials left after producing Beta = Total raw materials available - Raw materials used for Beta = 160000 - 120000	40000
Units of Alpha that can be produced = Pounds of raw materials left after producing Beta / Pounds per unit of Alpha = 40000 / 5	8000	units

	Alpha	Beta
Units produced	8000	60000

14.
Total contribution margin = ( Units of Alpha * Contribution margin per unit ) + ( Units of Beta * Contribution margin per unit ) = ( 8000 * 51 ) + ( 60000 * 40 )	2808000

15.
As we can see that with the available raw materials Cane cannot satisfy the demand of Alpha completely.
Maximum price to be paid per pound = Contribution margin per pound of Alpha	10.20