Check my worl The Foundational 15 LO122 L0123 LO124 LO125 L0

Check my worl The Foundational 15 [LO12-2, L012-3, LO12-4, LO12-5, L012-6] [The following information applies to the questions displayed below. Cane Company manufactures two products called Alpha and Beta that sell for $185 and $120, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 112,000 units of each product. Its average cost per unit for each product at this level of activity are given below: of 8 Alpha Beta 10 29 13 26 16 18 s 30 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 09:12 20 24 20 23 ok $139 $112 nces 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. Foundational 12-7 7. Assume that Cane normally produces and sells 48,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

Solution

Net Financial advantage Loss of revnue from Beta (48000 units @ 120) -5,760,000 Less: Savings in cost Material (48000*10) 480000 labour (48000*29) 1,392,000 Variable Mmanufacturing cost (48000*13) 624000 Traceable Fixed cost (112000*26) 2912000 Variable selling expense (48000*16) 768000 Net financial advantage 416000 Thus Net financial advantage of discontinuing Beta is $ 416000