6 The following information applies to the questions displayed below Cane Compan

Question

6 The following information applies to the questions displayed below 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 glven below: Part 6 of 15 Alpha Beta Direct materials Direct labor Variable manufacturing overhead Traceable fixed nanufacturing overhead variable selling expenses Common tixed expenses Total cost per unit 0.26 points 30 26 13 24 14 18 21 $130 $102 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 12-6 6. Assume that Cane normally produces and sells 96,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? Financial (disadvantage) Financial advantage

Explanation / Answer

6)Variable cost of sales =Direct material+labor +variable overhead+ variable selling

   = 15+22+11+14

= $ 62

Contribution margin =Price -variable cost

    = 110-62

    = 48

Loss of contribution If Beta is dropped [96000*48] (4,608,000) Traceable fixed manufacturing cost saved if beta is dropped [ 108000*24] 2,592,000 Financial advantage /(disadvantage) (2,016,000)

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