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Required Information The following information applies to the questions displaye

ID: 2403823 • Letter: R

Question

Required Information The following information applies to the questions displayed below Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 107,000 units of each product. Its unit costs 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 Alpha $ 30 25 12 21 17 20 Beta $ 10 20 10 23 13 15 Total cost per unit $125 $ 91 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.

Explanation / Answer

Statement of Ranking :-

Alpha

Beta

SP

150

105

(-) DM

30

10

(-) DL

25

20

(-) V.M.O/H

12

10

(-) Traceable fixed mfr O/H

21

23

(-) Variable selling exp

17

13

Contribution PU (A)

45

29

RM required in pound per unit (B)

6

2

Contribution per pound (A/B)

7.5

14.5

Ranking

2nd

1st

Raw Material optimum Utilisation :-

Ranking

Product

Demand

Units Produced

(A)

RM (Pound) required pu

(B)

RM (Pound) Allocated

(A * B)

Balance RM (Pound)

1st

Beta

65000

65000

2

130000

(166000 – 130000)

=36000

2nd

Alpha

85000

6000

6

36000

0

Maximum price paid for Raw Material per pound = Raw material existing price + Contribution lost per pound

Due to limited RM (Pound) available, we lost the contribution on Alpha

Contribution per pound for Alpha = $7.5

Maximum Price paid per Pound = $5 + $7.5 = $12.5

Alpha

Beta

SP

150

105

(-) DM

30

10

(-) DL

25

20

(-) V.M.O/H

12

10

(-) Traceable fixed mfr O/H

21

23

(-) Variable selling exp

17

13

Contribution PU (A)

45

29

RM required in pound per unit (B)

6

2

Contribution per pound (A/B)

7.5

14.5

Ranking

2nd

1st

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