Cane Company Manufactures Assignment
Cane Company manufactures two products called Alpha and Beta that sell for $240 and $162, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 131,000 units of each product. Its average cost per unit for each product at this level of activity are given below:
| Alpha | Beta | |||||||
| Direct materials | $ | 35 | $ | 15 | ||||
| Direct labor | 48 | 23 | ||||||
| Variable manufacturing overhead | 27 | 25 | ||||||
| Traceable fixed manufacturing overhead | 35 | 38 | ||||||
| Variable selling expenses | 32 | 28 | ||||||
| Common fixed expenses | 35 | 30 | ||||||
| Total cost per unit | $ | 212 | $ | 159 | ||||
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.
6. Assume that Cane normally produces and sells 110,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
7. Assume that Cane normally produces and sells 60,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
8. Assume that Cane normally produces and sells 80,000 Betas and 100,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 13,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
9. Assume that Cane expects to produce and sell 100,000 Alphas during the current year. A supplier has offered to manufacture and deliver 100,000 Alphas to Cane for a price of $160 per unit. What is the financial advantage (disadvantage) of buying 100,000 units from the supplier instead of making those units?
10. Assume that Cane expects to produce and sell 75,000 Alphas during the current year. A supplier has offered to manufacture and deliver 75,000 Alphas to Cane for a price of $160 per unit. What is the financial advantage (disadvantage) of buying 75,000 units from the supplier instead of making those units?
11. How many pounds of raw material are needed to make one unit of each of the two products?
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 100,000 units of Alpha and 80,000 units of Beta. Also assume that the company’s raw material available for production is limited to 261,000 pounds. How many units of each product should Cane produce to maximize its profits?
14. Assume that Cane’s customers would buy a maximum of 100,000 units of Alpha and 80,000 units of Beta. Also assume that the company’s raw material available for production is limited to 261,000 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 100,000 units of Alpha and 80,000 units of Beta. Also assume that the company’s raw material available for production is limited to 261,000 pounds. If Cane uses its 261,000 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.)
