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 94,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
Assume that Cane normally produces and sells 94,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?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 average cost per unit for each product at this level of activity are given below:
| 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 | ||||
Assume that Cane normally produces and sells 44,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? 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. What is the financial advantage (disadvantage) of discontinuing the Beta product line?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. What is the financial advantage (disadvantage) of buying 84,000 units from the supplier instead of making those units?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. What is the financial advantage (disadvantage) of buying 54,000 units from the supplier instead of making those units?What contribution margin per pound of raw material is earned by each of the two products?ume that Cane’s customers would buy a maximum of 84,000 units of Alpha and 64,000 units of Beta. Also assume that the raw material available for production is limited to 166,000 pounds. How many units of each product should Cane produce to maximize its profits?
