Question

7. Cane Company manufactures two products called Alpha and Beta that sell for $170 and $130, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 116,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 30 $ 18 Direct labor 30 25 Variable manufacturing overhead 20 15 Traceable fixed manufacturing overhead 26 28 Variable selling expenses 22 18 Common fixed expenses 25 20 Total cost per unit $ 153 $ 124 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.

Assume that Cane normally produces and sells 50,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

8. Cane Company manufactures two products called Alpha and Beta that sell for $170 and $130, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 116,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 30 $ 18 Direct labor 30 25 Variable manufacturing overhead 20 15 Traceable fixed manufacturing overhead 26 28 Variable selling expenses 22 18 Common fixed expenses 25 20 Total cost per unit $ 153 $ 124 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.

Assume that Cane normally produces and sells 70,000 Betas and 90,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 14,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

9. Cane Company manufactures two products called Alpha and Beta that sell for $170 and $130, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 116,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 30 $ 18 Direct labor 30 25 Variable manufacturing overhead 20 15 Traceable fixed manufacturing overhead 26 28 Variable selling expenses 22 18 Common fixed expenses 25 20 Total cost per unit $ 153 $ 124 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.

Assume that Cane expects to produce and sell 90,000 Alphas during the current year. A supplier has offered to manufacture and deliver 90,000 Alphas to Cane for a price of $120 per unit. What is the financial advantage (disadvantage) of buying 90,000 units from the supplier instead of making those units?

10. Cane Company manufactures two products called Alpha and Beta that sell for $170 and $130, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 116,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 30 $ 18 Direct labor 30 25 Variable manufacturing overhead 20 15 Traceable fixed manufacturing overhead 26 28 Variable selling expenses 22 18 Common fixed expenses 25 20 Total cost per unit $ 153 $ 124 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.

Assume that Cane expects to produce and sell 60,000 Alphas during the current year. A supplier has offered to manufacture and deliver 60,000 Alphas to Cane for a price of $120 per unit. What is the financial advantage (disadvantage) of buying 60,000 units from the supplier instead of making those units?

Answer 1

Here multiple questions posted and as per policy solving 1st one
7)Sales per unit of beta=130
varaible cost per unit
direct material+direct labour+variable mfg overhead+var selling expense
=18+25+15+18=76
Contribution margin per unit=sales-variable costs
=130-76=$54
Contribution margin lost if the Beta product line is dropped=54*50000=-$2700000
Since traceable fixed manufacturing overhead to be avoidable we should consider this
=Traceable fixed manufacturing overhead per unit* capacity
=28*116000=3248000
financial advantage (disadvantage) of discontinuing the Beta product line
=-2700000+3248000=548000