Required information The Foundational 15 [LO12-2, L012-3, LO12-4, LO12-5, LO12-6
ID: 2523571 • Letter: R
Question
Required information The Foundational 15 [LO12-2, L012-3, LO12-4, LO12-5, LO12-6] The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $170 and $130, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 116,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Beta $ 18 25 15 28 18 20 $124 $ 30 30 20 26 25 $153 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.Explanation / Answer
6.
Contribution margin per unit for Beta = Selling price - Variable costs
= Selling price - Direct materials - Direct labour - Variable manufacturing overhead - Variable selling expenses
= 130 - 18 - 25 - 15 - 18
= 54
7.
Contribution margin per unit for Beta = Selling price - Variable costs
= Selling price - Direct materials - Direct labour - Variable manufacturing overhead - Variable selling expenses
= 130 - 18 - 25 - 15 - 18
= 54
8.
Contribution margin per unit for Beta = Selling price - Variable costs
= Selling price - Direct materials - Direct labour - Variable manufacturing overhead - Variable selling expenses
= 130 - 18 - 25 - 15 - 18
= 54
Contribution margin per unit for Alpha = Selling price - Variable costs
= Selling price - Direct materials - Direct labour - Variable manufacturing overhead - Variable selling expenses
= 170 - 30 - 30 - 20 - 22
= 68
9.
Relavent costs for Alphas = Direct materials + Direct labour + Variable manufacturing overhead + Traceable fixed manufacturing overhead
= (30*90,000) + (30*90,000) + (20*90,000) + (26*116,000)
= 2,700,000 + 2,700,000 + 1,800,000 + 3,016,000
= 10,216,000
Relavent cost to buy = 90,000 * 120 = 10,800,000
Financial disadvantage = 10,800,000 - 10,216,000 = 584,000
10.
Relavent costs for Alphas = Direct materials + Direct labour + Variable manufacturing overhead + Traceable fixed manufacturing overhead
= (30*60,000) + (30*60,000) + (20*60,000) + (26*116,000)
= 1,800,000 + 1,800,000 + 1,200,000 + 3,016,000
= 7,816,000
Relavent cost to buy = 60,000 * 120 = 7,200,000
Financial advantage = 7,816,000 - 7,200,000 = 616,000
Contribution margin lost (5,400,000) (54*100,000) Add : Avoidable fixed costs Fixed manufacturing overhead 3,248,000 (28*116,000) Financial disadvantage of dropping the product line (2,152,000)Related Questions
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