1. What is the total amount of traceable fixed manufacturing overhead for each o
ID: 2587656 • Letter: 1
Question
1. What is the total amount of traceable fixed manufacturing overhead for each of the two products? Alpha? Beta?
2. What is the company’s total amount of common fixed expenses?
3. Assume that Cane expects to produce and sell 83,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 13,000 additional Alphas for a price of $92 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?
4. Assume that Cane expects to produce and sell 93,000 Betas during the current year. One of Cane’s sales representatives has found a new customer who is willing to buy 4,000 additional Betas for a price of $42 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order?
5. Assume that Cane expects to produce and sell 98,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 13,000 additional Alphas for a price of $92 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 6,000 units.
a. What is the financial advantage (disadvantage) of accepting the new customer’s order?
b. Based on your calculations above should the special order be accepted?
6. Assume that Cane normally produces and sells 93,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
7. Assume that Cane normally produces and sells 43,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
8. Assume that Cane normally produces and sells 63,000 Betas and 83,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 18,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
9. Assume that Cane expects to produce and sell 83,000 Alphas during the current year. A supplier has offered to manufacture and deliver 83,000 Alphas to Cane for a price of $92 per unit. What is the financial advantage (disadvantage) of buying 83,000 units from the supplier instead of making those units?
10. Assume that Cane expects to produce and sell 53,000 Alphas during the current year. A supplier has offered to manufacture and deliver 53,000 Alphas to Cane for a price of $92 per unit. What is the financial advantage (disadvantage) of buying 53,000 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 83,000 units of Alpha and 63,000 units of Beta. Also assume that the company’s raw material available for production is limited to 200,000 pounds. How many units of each product should Cane produce to maximize its profits? Alpha? Beta?
14. Assume that Cane’s customers would buy a maximum of 83,000 units of Alpha and 63,000 units of Beta. Also assume that the company’s raw material available for production is limited to 200,000 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 83,000 units of Alpha and 63,000 units of Beta. Also assume that the company’s raw material available for production is limited to 200,000 pounds. If Cane uses its 200,000 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 following information applies to the questions displayed below.j Cane Company manufactures two products called Alpha and Beta that sell for $135 and $95, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 105,000 units of each product. Its average cost per unit for each product at this level of activity are given below Alpha Beta Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 30 23 10 19 15 18 $115 $18 16 21 13 $87 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
Cane Company
Traceable fixed manufacturing overhead = traceable fixed manufacturing overhead per unit x level of activity
Alpha –
traceable fixed manufacturing overhead per unit = $19
level of activity = 105,000 units
traceable fixed manufacturing overhead = $19 x 105,000 = $1,995,000
Beta –
traceable fixed manufacturing overhead per unit = $21
level of activity = 105,000 units
traceable fixed manufacturing overhead = $21 x 105,000 = $2,205,000
Hence traceable fixed manufacturing overhead for Alpha and Beta are $1,995,000 and $2,205,000, respectively.
Given,
Common fixed expenses per unit of Alpha = $18
Common fixed expenses per unit of Beta = $13
Total common fixed expenses,
Alpha = $18 x 105,000 units = $1,890,000
Beta = $13 x 105,000 units = $1,365,000
Total common fixed expenses = $3,255,000
Contribution margin per unit:
Cost per unit of Alpha –
Direct materials $30
Direct labor $23
Variable manufacturing overhead $10
Variable selling expenses $15
Total variable cost per unit $78
Selling price per unit $92
Contribution margin per unit $14
Additional contribution margin from sale of 13,000 Alpha units to a new customer = $14 x 13,000 = $182,000
Hence, acceptance of the special order would result in a financial advantage of $182,000.
Since the company has capacity to produce 105,000 units of Alpha, and the expected sales units is 83,000 units for the current year, the company has excess capacity to produce up to 22,000 units (105,000 – 83,000). So, the company can accept any special order that earns a contribution margin per unit. Hence, acceptance of the special order from a new customer is a financial advantage to the extent of $182,000.
Contribution margin per unit:
Cost per unit of Beta
Direct materials $18
Direct labor $16
Variable manufacturing overhead $8
Variable selling expenses $11
Total variable cost per unit $53
Selling price per unit $42
Contribution margin per unit $(11)
Contribution margin lost = $11 x 4,000 = $44,000
Hence, acceptance of the special order of 4,000 units of Beta at the selling price of $42 per unit involves a financial disadvantage of $44,000 to the company.
13,000 additional units at $92 per unit
Loss of regular sales – 6,000 units
Contribution margin per unit at selling price of $92 per unit of Alpha = $14 (calculated in 1. Above)
Total contribution margin of 13,000 units = $14 x 13,000 = $182,000
Contribution margin lost on regular sales = contribution margin per unit from regular sales x 6,000 units
Contribution margin per unit from regular sales –
Direct materials $30
Direct labor $23
Variable manufacturing overhead $10
Variable selling expenses $15
Total variable cost per unit $78
Selling price per unit $135
Contribution margin per unit $57
Hence, contribution margin loss on regular sales = $57 x 6,000 units = 342,000
Net loss from accepting the new customer’s order = $182,000 – ($342,000) = -$160,000
Hence, acceptance of the new customer’s order for 13,000 units of Alpha at $92 per unit and loss of regular sales of 6,000 units would result in a financial disadvantage of $160,000.
The net loss of acceptance of the special order is $160,000.
Hence, the special order should not be accepted.
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