1) What is the total amount of traceable fixed manufacturing overhead for each o
ID: 2528326 • Letter: 1
Question
1) What is the total amount of traceable fixed manufacturing overhead for each of the two products?
2) What is the company’s total amount of common fixed expenses?
3) Assume that Cane expects to produce and sell 81,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 11,000 additional Alphas for a price of $84 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?
4) Assume that Cane expects to produce and sell 91,000 Betas during the current year. One of Cane’s sales representatives has found a new customer who is willing to buy 6,000 additional Betas for a price of $40 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?
5) Assume that Cane expects to produce and sell 96,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 11,000 additional Alphas for a price of $84 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 6,000 units. What is the financial advantage (disadvantage) of accepting the new customer’s order?
6) Assume that Cane normally produces and sells 91,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
7) Assume that Cane normally produces and sells 41,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
8) Assume that Cane normally produces and sells 61,000 Betas and 81,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 16,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
9) Assume that Cane expects to produce and sell 81,000 Alphas during the current year. A supplier has offered to manufacture and deliver 81,000 Alphas to Cane for a price of $84 per unit. What is the financial advantage (disadvantage) of buying 81,000 units from the supplier instead of making those units?
10) Assume that Cane expects to produce and sell 51,000 Alphas during the current year. A supplier has offered to manufacture and deliver 51,000 Alphas to Cane for a price of $84 per unit. What is the financial advantage (disadvantage) of buying 51,000 units from the supplier instead of making those units?
11) How many pounds of raw material are needed to make one unit of each of the two products?
12) What contribution margin per pound of raw material is earned by each of the two products? (Round your answers to 2 decimal places.)
13) Assume that Cane’s customers would buy a maximum of 81,000 units of Alpha and 61,000 units of Beta. Also assume that the company’s raw material available for production is limited to 161,000 pounds. How many units of each product should Cane produce to maximize its profits?
14) Assume that Cane’s customers would buy a maximum of 81,000 units of Alpha and 61,000 units of Beta. Also assume that the company’s raw material available for production is limited to 161,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?
15) Assume that Cane’s customers would buy a maximum of 81,000 units of Alpha and 61,000 units of Beta. Also assume that the company’s raw material available for production is limited to 161,000 pounds. If Cane uses its 161,000 pounds of raw materials, up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)
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Cane Company manufactures two products called Alpha and Beta that sell for $125 and $85, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 101,000 units of each product. Its average cost per unit for each product at this level of activity are given below: AlphaBeta $12 20 $ 30 21 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses 19 17 13 16 $105 $77 Total cost per unit 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 dollarsExplanation / Answer
Solution:
1)
Total amount of traceable fixed manufacturing overhead = $3,636,000
Alpha
Beta
Total
Annual Production Capacity in units (A)
101000
101000
Traceable Fixed manufacturing overhead per unit (B)
$17
$19
Total Traceable Fixed MFR Overhead (A*B)
$1,717,000
$1,919,000
$3,636,000
2)
The company’s total amount of common fixed expenses = $2,727,000
Alpha
Beta
Total
Annual Production Capacity in units (A)
101000
101000
Common Fixed expenses per unit (B)
$16
$11
Total Common Fixed expenses (A*B)
$1,616,000
$1,111,000
$2,727,000
3) Financial advantage (disadvantage) of accepting the new customer's order
This type of question has a direct relation with relevant cost.
Relevant Cost is the cost which will be incurred in future and different under each alternative course of action. The following costs are considered as relevant cost:
- Direct material cost
- Direct labor cost
- Variable manufacturing overhead
- Variable Cost of Goods Sold
- Variable selling and administrative expenses
- Fixed Cost which is directly related to the alternative course of action (traceable Fixed Cost).
The above costs are the variable cost which will vary with the production volume. Hence these costs have both the characteristic of relevant cost i.e. it is a future cost and different under each alternative course of action.
Sometimes there are some fixed costs which will directly associated with the production or increase production units and have characteristics of relevant cost. i.e. future cost and different under each alternative course of action.
Irrelevant cost is the costs which do not play any role in decision making. Irrelevant Cost is the SUNK Cost which has already been incurred and does not change whether company accept or reject the order. Hence it is treated as IRRELEVANT COST. In the given question the irrelevant cost is common fixed expenses since it will continue to incur and does not have any affect from decision of continuing or discontinuing a product line.
Traceable fixed manufacturing costs are the costs which can be directly traceable with the product and eliminated if production of product is stopped.
Calculation of Relevant Variable Cost per unit
Alpha
Total Cost per unit
$105
Less: Traceable fixed MF OH
17
Less: Common Fixed Expenses
16
Total Relevant Cost per unit
$72
$$
Additional Sales Revenue (11,000 Units x $84)
$924,000
Less: Total Relevant Cost related to special order (11,000 Units x $72)
$792,000
Additional Contribution Margin from order
$132,000
Note – Traceable fixed MF OH and common fixed OH are not considered since these overheads are continue to be incurred irrespective of company accept the order or not. Hence ignored.
The financial advantage of accepting the new customer’s order = $132,000
4)
Calculation of Relevant Variable Cost per unit
Beta
Total Cost per unit
$77
Less: Traceable fixed MF OH
19
Less: Common Fixed Expenses
11
Total Relevant Cost per unit
$47
$$
Additional Sales Revenue (6,000 Units x $40)
$240,000
Less: Total Relevant Cost related to the special order (6,000 Units x $47)
$282,000
Financial Disadvantage from special order
-$42,000
financial advantage (disadvantage) of accepting the new customer's order = -$42,000
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Pls ask separate question for remaining parts.
Alpha
Beta
Total
Annual Production Capacity in units (A)
101000
101000
Traceable Fixed manufacturing overhead per unit (B)
$17
$19
Total Traceable Fixed MFR Overhead (A*B)
$1,717,000
$1,919,000
$3,636,000
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