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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 $ 30 $ 18
Direct labor 23 16
Variable manufacturing overhead 10 8
Traceable fixed manufacturing overhead 19 21
Variable selling expenses 15 11
Common fixed expenses 18 13
Total cost per unit $115 $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
1. What is the total amount of traceable fixed manufacturing overhead for each of the two products? Alpha? Beta?2. What is the company’s total amount of common fixed expenses?3. Assume that Cane expects to produce and sell 83,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 13,000 additional Alphas for a price of $92 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?4. Assume that Cane expects to produce and sell 93,000 Betas during the current year. One of Cane’s sales representatives has found a new customer who is willing to buy 4,000 additional Betas for a price of $42 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?5. Assume that Cane expects to produce and sell 98,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 13,000 additional Alphas for a price of $92 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 6,000 units. a. What is the financial advantage (disadvantage) of accepting the new customer’s order?b. Based on your calculations above should the special order be accepted?6. Assume that Cane normally produces and sells 93,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?7. Assume that Cane normally produces and sells 43,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?8. Assume that Cane normally produces and sells 63,000 Betas and 83,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 18,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?9. Assume that Cane expects to produce and sell 83,000 Alphas during the current year. A supplier has offered to manufacture and deliver 83,000 Alphas to Cane for a price of $92 per unit. What is the financial advantage (disadvantage) of buying 83,000 units from the supplier instead of making those units?10. Assume that Cane expects to produce and sell 53,000 Alphas during the current year. A supplier has offered to manufacture and deliver 53,000 Alphas to Cane for a price of $92 per unit. What is the financial advantage (disadvantage) of buying 53,000 units from the supplier instead of making those units?
Answers: 2
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