Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below.j Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit AlphaBeta s 15 30 16 29 19 21 $130 $ 40 30 18 26 23 2 6 $163 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 What contribution margin per pound of raw material is earned by each of the two products? (Round your answers to 2 decimal places.) Answer is not complete. Alpha $ 15.75 Beta Contribution margin per und

Explanation / Answer

Contribution Margin per Pound :-

Alpha

Beta

Sale Price

175

135

Direct Material

-40

-15

Direct Labour

-30

-30

Variable manufacturing O/H

-18

-16

Traceable Fixed

-26

-29

Variable selling

-23

-19

Contribution per unit (A)

38

26

Raw material required/unit (pound) (B)

(40/5)

=8

(15/5)

=3

Contribution/pound (A/B)

4.75

8.67

Ranking

2nd

1st

Units of each Product produce to maximize profit (Optimum Mix):-

Ranking

Product

Demand

Raw Material Available

Raw material Consume

Balance Raw Material

Units Produced

1st

Beta

71000

225000

(71000 * 3)

=213000

(225000-213000)

=12000

71000

2nd

Alpha

91000

12000

12000

---

(12000/8)

=1500

Alpha Produce = 1500 units & Beta Produce = 71000 units

Total Contribution :-

Alpha

Beta

Units Produced

71000

1500

Contribution per unit

38

26

Total Contribution

2698000

39000

Maximum Price to be paid per pound = DM price per pound already paid + Contribution lost per pound

Due to limited Raw material we are unable to produce Product Alpha

Contribution per pound for Alpha = 4.75

Maximum price = 5 + 4.75 = 9.75

Alpha

Beta

Sale Price

175

135

Direct Material

-40

-15

Direct Labour

-30

-30

Variable manufacturing O/H

-18

-16

Traceable Fixed

-26

-29

Variable selling

-23

-19

Contribution per unit (A)

38

26

Raw material required/unit (pound) (B)

(40/5)

=8

(15/5)

=3

Contribution/pound (A/B)

4.75

8.67

Ranking

2nd

1st

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