6. Assume that Cane normally produces and sells 93,000 Betas per year. What is t

Question

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?

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 dollars

Explanation / Answer

Solution - 6:

From above table, finacial disadvantage in discontinuing beta is $1,701,000.

Solution 7:

From above table, finacial advantage in discontinuing beta is $399,000.

Solution 8:

From above table, finacial advantage in discontinuing beta is $585,000.

Solution 9:

From above table, finacial disadvantage in buying alpha is $412,000.

Soluton 10:

From above table, finacial advantage in buying alpha is $458,000.

Differential Analysis - Sale Beta (93000 units) (alt 1) or Discontinue Beta (Alt2) Particulars Sale Beta (93000 Units)
(Alt 1) Discontinue Beta (Alt 2) Differential effect on income (Alt 2) Details Amount Details Amount Revenue 93000*$95 $8,835,000.00 $0.00 -$8,835,000.00 Costs: Direct Material 93000*$18 $1,674,000.00 $0.00 -$1,674,000.00 Direct Labor 93000*$16 $1,488,000.00 $0.00 -$1,488,000.00 Variable manufacturing Overhead 93000*$8 $744,000.00 $0.00 -$744,000.00 Variable Selling Expenses 93000*$11 $1,023,000.00 $0.00 -$1,023,000.00 Traceable Fixed manufacturing overhead 105000*$21 $2,205,000.00 $0.00 -$2,205,000.00 Common fixed expenses 105000*$13 $1,365,000.00 105000*$13 $1,365,000.00 $0.00 Income / (Loss) $336,000.00 -$1,365,000.00 -$1,701,000.00

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