13. Assume that Cane’s customers would buy a maximum of 82,000 units of Alpha an

Question

13. Assume that Cane’s customers would buy a maximum of 82,000 units of Alpha and 62,000 units of Beta. Also assume that the company’s raw material available for production is limited to 162,000 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 82,000 units of Alpha and 62,000 units of Beta. Also assume that the company’s raw material available for production is limited to 162,000 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 82,000 units of Alpha and 62,000 units of Beta. Also assume that the company’s raw material available for production is limited to 162,000 pounds. If Cane uses its 162,000 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.)

Required information The Foundational 15 [LO12-2, LO12-3, 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 $130 and $90, respectively. Eaclh product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 102,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta $10 21 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit s 25 17 18 14 17 $113 20 10 12 $80 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

13.

Pound needed per unit=direct material/cost per pound

Alpha=$25/$5=5 pound per unit

Beta=$10/$5=2 pound per unit

Contribution margin per unit=sales price -variable expenses

Contribution margin per unit:

Alpha;$130-($25+$22+$17+$14)=$52 per unit

Beta;$90-($10+$21+$7+$10)=$42 per unit

Contribution margin per pound:

Alpha=$52/5=$10.40 per pound

Beta=$42/ 2=$21 per pound

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 (62000 units ×2 pound per unit)=124,000 pounds

Remaining pounds(162,000-124,000)=38000 pounds

Alpha products able to be produced(38000/5)=7600 units

So company will produce 62000 units of Beta and 7600 units of Alpha.

14.

Maximum contribution margin company can earn given the limited quantity of raw materials=$395,200+$2,604,000

=$2,999,200

15.

As with constrained resource of raw material first all the demand of Beta is fulfilled , now the extra raw material can be used for production of Alpha. So company should be willing to pay per pound for additional raw material:

= regular direct material cost per pound+ contribution margin per pound of Alpha

=$5 per pound+$10.40 per pound

=$15.40 per pound

So maximum price willing to pay for additional raw material=$15.40 per pound

Alpha Beta Contribution margin per unit $52 $42 Unit produced × 7600 ×62000 Total contribution margin $395,200 $2,604,000

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