Required information The following information applies to the questions displayed below.j Cane Company manufactures two products called Alpha and Beta that sell for $210 and $172, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 128,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta $ 24 34 23 36 26 28 $171 $ 40 38 25 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 30 $199 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 7. Assume that Cane normally produces and sells 58,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? inancial advantage
7. contribution margin of beta = 172-(24+34+23+26) = 65
Financial disadvantage = 3600000-(58000*65) = 170000
8. if cane discontinues beta production, increase in profits = (78000*65)-3600000 = 1470000
Contribution margin for increased sale of alpha = 11000*(210-(40+38+25+30)) = 847000
Financial advantage = total increase in profits = 1470000+847000 = 2317000
10. cost saved = (73000*(40+38+25))+3300000 = 10819000
Cost incurred to buy = (73000*152) = 11096000
Financial disadvantage = 11096000-10819000 = 277000
11. pound of direct materials per unit
Alpha = 40/8 = 5
Beta = 24/8 = 3
12. contribution margin per pound
Alpha = (210-(40+38+25+30))/5 = 15.40
Beta = (172-(24+34+23+26))/3 = 21.67
13. units produced
Beta = 78000
Alpha = (248000-(78000*3))/5 = 2800
Therefore ,
Alpha = 2800
Beta = 78000
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