PLEASE ANSWER ALL THE QUESTION Cane Company manufactures two products called Alp
ID: 2467164 • Letter: P
Question
PLEASE ANSWER ALL THE QUESTION
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 unit costs for each product at this level of activity are given below:
ANSWER THE FOLLOWING QUESTIONS:
1.Assume that Cane expects to produce and sell 99,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 14,000 additional Alphas for a price of $96 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 7,000 units.
a.
Calculate the incremental net operating income if the order is accepted? (Loss amount should be indicated with a minus sign.)
2. 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. If Cane buys 84,000 units from the supplier instead of making those units, how much will profits increase or decrease?
3.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. If Cane buys 54,000 units from the supplier instead of making those units, how much will profits increase or decrease?
4.Assume that Cane’s customers would buy a maximum of 84,000 units of Alpha and 64,000 units of Beta. Also assume that the company’s raw material available for production is limited to 166,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?
5. Assume that Cane’s customers would buy a maximum of 84,000 units of Alpha and 64,000 units of Beta. Also assume that the company’s raw material available for production is limited to 166,000 pounds. Up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)
PLEASE ANSWER ALL THE QUESTION
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 unit costs for each product at this level of activity are given below:
Explanation / Answer
Since, there are multiple parts to the question, the first four have bee answered.
______________
Part 1)
The incremental profit/loss is calculated with the use of following table:
The net operating income would decrease by $210,000 if the offer is accepted.
__________
Part 2)
The incremental profit/loss is calculated with the use of following table:
The profits will decrease by $400,000 if the offer from the supplier is accepted.
__________
Part 3)
The incremental profit/loss is calculated with the use of following table:
The profits will increase by $500,000 if the offer from the supplier is accepted.
__________
Part 4)
To determine the maximum contribution margin, we need to calculate the contribution per pound of raw material:
The company should produce the expected units of Beta (64,000) as it provides a higher contribution of $22 per pound. This would result in the usage of 128,000 pounds (64,000*2) raw material. The remaining raw material of 38,000 pounds (166,000 - 128,000) should be used in the production of Alpha. A maximum of 9,500 units (38,000/4) of Alpha can be produced with 38,000 pounds.
The maximum contribution that can be earned by the company is calculated as follows:
Maximum Contribution = 64,000*44 (Beta) + 9,500*58 (Alpha) = $3,367,000
Incremental Sales (14,000*96) 1,344,000 Less Variable Costs Direct Material (14,000*32) 448,000 Direct Labor (14,000*24) 336,000 Variable Manufacturing Overhead (14,000*10) 140,000 Variable Selling Expenses (14,000*16) 224,000 Incremental Total Variable Cost 1,148,000 Loss of Contribution Margin from Regular Customers [7,000*(140 – 32 – 24 – 10 – 16)] 406,000 Incremental Net Operating Income -$210,000Related Questions
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