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: Alpha Beta $10 21 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses $ 25 17 18 20 10 12 $80 17 Total cost per unit $113 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 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.) Maximum price to be paid per pound

Solution

Alpha Beta Total Units of production 82000 62000 Material required to produce one unit 5 pounds 2 pounds Material required to production 410000 124000 534000 Raw material available 162000 Additional raw material required 372000 The company can produce all the units of Product Beta, and it will require additional raw material for Product Alpha. Contribution margin for Alpha Selling Price $130 Direct Materials $25 Direct labour $22 Variable manufacturing overheads $17 Variable selling expenses $14 Total variable cost $78 Contribution margin per unit $52 Contribution margin per pound of direct materials used ($52/5 pound) $10.40 Cost per pound $5 Contribution margin per pound of direct materials used $10.40 Maximum price to be paid per pound $15.40