Required information The following information applies to th

Required information [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. Each 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: AlphaBeta $10 21 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit $ 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 6. Assume that Cane normally produces and sells 92,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

Solution

Loss in Contribution margin -3864000 =92000*(90-10-21-7-10) Avoidable fixed costs 2040000 =102000*20 Financial (disadvantage) -1824000