5. Assume that Cane expects to produce and sell 111,000 Alphas during the curren

Question

5. Assume that Cane expects to produce and sell 111,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 26,000 additional Alphas for a price of $144 per unit; however, pursuing this opportunity will decrease Alpha sales to regular customers by 12,000 units. What is the financial advantage (disadvantage) of accepting the new customer’s order?

7. Assume that Cane normally produces and sells 56,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

9. Assume that Cane expects to produce and sell 96,000 Alphas during the current year. A supplier has offered to manufacture and deliver 96,000 Alphas to Cane for a price of $144 per unit. What is the financial advantage (disadvantage) of buying 96,000 units from the supplier instead of making those units?

10. Assume that Cane expects to produce and sell 71,000 Alphas during the current year. A supplier has offered to manufacture and deliver 71,000 Alphas to Cane for a price of $144 per unit. What is the financial advantage (disadvantage) of buying 71,000 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?

13. Assume that Cane’s customers would buy a maximum of 96,000 units of Alpha and 76,000 units of Beta. Also assume that the company’s raw material available for production is limited to 246,000 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 96,000 units of Alpha and 76,000 units of Beta. Also assume that the company’s raw material available for production is limited to 246,000 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 96,000 units of Alpha and 76,000 units of Beta. Also assume that the company’s raw material available for production is limited to 246,000 pounds. If Cane uses its 246,000 pounds of raw materials, up to how much should it be willing to pay per pound for additional raw materials?

Required information The Foundational 15 [LO12-2, LO12-3, L012-4, 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 $215 and $160, respectively. Each product uses only one type of raw material that costs $7 per pound. The company has the capacity to annually produce 125,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Beta $ 21 28 21 34 24 26 $154 Alpha Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses $ 42 35 23 31 28 31 $190 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 dollars

Explanation / Answer

5.

Profit impact is as follows:

incremental variable costs:

If accepts the order, there will be incremental net operating loss of $628,000

7.

Beta contribution margin:

=$160-(21+28+21+24)

=$66 per unit

Profit impact of dropping beta product line:

Contribution margin lost if Beta is dropped(56000×$66)=(3,696,000)

Traceable fixed manufacturing overhead (125,000×$34) =$4,250,000

Increase in net income if Beta is dropped=$554,000

9.

10.

13.

Pound per unit=direct material/cost per pound

Alpha=42/$7=6pound per unit

Beta=21/$7=3 pound per unit

Contribution margin per pound:

Alpha=$87/6=14.5

Beta=$66/ 3=$22

As contribution per pound of Beta is more so first Beta units are produced and remaining will be used to produced Alpha.

Pounds used for Beta (76000×3)=228,000 pounds

Remaining pounds(246,000-228,000)=18000 pounds

Alpha products able to be produced(18000/6)=3000 units

So company will produce 76000 units of Beta and 3000 units of Alpha.

Incremental revenue (26000×$144) $3,744,000

incremental variable costs:

Direct material{(26000-12000=14000)×$42} $588,000 Direct labour(14000×$35) $490,000 Variable manufacturing overhead (14000×$23) $322,000 Variable selling costs (14000×$28) $392,000 Less Total incremental variable costs $1,792,000 Less forgone sales to regular customers (12000×$215) $2,580,000 Incremental net operating income (loss) (628,000)

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