Question

Cane Company manufactures two products called Alpha and Beta that sell for $140 and $100, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 106,000 units of each product. Its unit costs for each product at this level of activity are given below:

	Alpha				Beta
Direct materials		$	32			$	16
Direct labor			24				19
Variable manufacturing overhead			10				9
Traceable fixed manufacturing overhead			20				22
Variable selling expenses			16				12
Common fixed expenses			19				14
Total cost per unit		$	121			$	92

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.

Please explain and show work, the other answers I received were not correct and I can't seem to figure them out! Please help :)

5.

Assume that Cane expects to produce and sell 99,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 14,000 additional Alphas for a price of $96 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 7,000 unit

.

Calculate the incremental net operating income if the order is accepted?

incremental net operating income

6.

Assume that Cane normally produces and sells 94,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

prfoit decrease

by?

7

Assume that Cane normally produces and sells 44,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?

profit increase

by?

8.

Assume that Cane normally produces and sells 64,000 Betas and 84,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 19,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?

profit increase

by?

9.

Assume that Cane expects to produce and sell 84,000 Alphas during the current year. A supplier has offered to manufacture and deliver 84,000 Alphas to Cane for a price of $96 per unit. If Cane buys 84,000 units from the supplier instead of making those units, how much will profits increase or decrease?

profit decrease

by?

10.Assume that Cane expects to produce and sell 54,000 Alphas during the current year. A supplier has offered to manufacture and deliver 54,000 Alphas to Cane for a price of $96 per unit. If Cane buys 54,000 units from the supplier instead of making those units, how much will profits increase or decrease?

profit increase

by?

12. What contribution margin per pound of raw material is earned by Alpha and Beta

contribution margin per pound

alpha?

beta?

15. Assume that Cane’s customers would buy a maximum of 84,000 units of Alpha and 64,000 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?

max price to be paid per pound

$?

Answer 1

Cane Company
	($)	($)
	Alpha	Beta
Direct Materials	32	16
Direct Labor	24	19
Variable Manufacturing Overhead	10	9
Traceable fixed manufacturing overhead (Avoidable)	20	22
Variable selling expenses	16	12
Common fixed expenses (Unavoidable)	19	14
Total cost per unit	121	92
Selling Price	140	100
Annual Capacity (Units)	106000	106000

Calculation of Profit/Unit
	Alpha	Beta
Selling Price	140	100
Less: Variable expenses
Direct materials	32	16
Direct labor	24	19
Variable Mfg Overhead	10	9
Variable selling exp	16	12
Contribution	58	44
Less: Traceable fixed Mfg Overhead (avoidable)	20	22
Profit Per Unit	38	22
Total Cost Per Unit (Variable+Fixed)	102	78