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0 14 Required information The Foundational 15 [LO12-2, LO12-3, LO12-4, LO12-5, L

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Question

0 14 Required information The Foundational 15 [LO12-2, LO12-3, LO12-4, LO12-5, L012-6 The following information applies to the questions displayed below Part 14 of t5 Cane Company manufactures two products called Alpha and Beta that sell for $150 and $110, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 108,000 units of each product. Its average cost per unit for each product at this level of activity are given below 0.26 points Alpha Beta s 15 Direet materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Conmon fixed expenses Total cost per unit 5 30 26 13 24 14 16 102 18 $130 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. Foundational 12-14 14. Assume that Cane's customers would buy a maximum of 86,000 units of Alphe and 66,000 units of Beta. Also assume that the company's raw material available for production is limited to 210,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?

Explanation / Answer

Direct material required per unit

Particulars

Alpha

Beta

Material cost

30

15

Per pound

5

5

No of pounds required per unit

6

3

Calculation of Contribution margin per pound of raw material

Particulars

Alpha

Beta

Selling price per unit

150

110

Less: Variable cost

Material cost

30

15

Direct labour

26

22

variable manf overheads

13

11

Variable selling expenses

18

14

Contribution per unit

63

48

No of pounds material required

6

3

Contribution margin per pound

10.5

16

Rank

2

1

Raw material available for production

210,000

Maximum demand for product beta

66,000 units

Material required for beta (66,000*3)

198000

Remaining material after beta production
will be used for alpha

12,000 pounds

Alpha maximum production (12,000/6)

2000 units

Calculation of optimal contribution margin

Particulars

Alpha

Beta

Production in units

2000

66000

Contribution per unit

63

48

Total contribution

           126,000

       3,168,000

Total contribution (126,000+3,168,000)

        3,294,000

Direct material required per unit

Particulars

Alpha

Beta

Material cost

30

15

Per pound

5

5

No of pounds required per unit

6

3

Calculation of Contribution margin per pound of raw material

Particulars

Alpha

Beta

Selling price per unit

150

110

Less: Variable cost

Material cost

30

15

Direct labour

26

22

variable manf overheads

13

11

Variable selling expenses

18

14

Contribution per unit

63

48

No of pounds material required

6

3

Contribution margin per pound

10.5

16

Rank

2

1

Raw material available for production

210,000

Maximum demand for product beta

66,000 units

Material required for beta (66,000*3)

198000

Remaining material after beta production
will be used for alpha

12,000 pounds

Alpha maximum production (12,000/6)

2000 units

Calculation of optimal contribution margin

Particulars

Alpha

Beta

Production in units

2000

66000

Contribution per unit

63

48

Total contribution

           126,000

       3,168,000

Total contribution (126,000+3,168,000)

        3,294,000