Homework SourseCane Company manufactures two products called Alpha and Beta
Cane Company manufactures two products called Alpha and Beta that sell for $240 and $162, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 131,000 units of each product. Its unit costs for each product at this level of activity are given below:
Alpha
Beta
Direct materials
$
35
$
15
Direct labor
48
23
Variable manufacturing overhead
27
25
Traceable fixed manufacturing overhead
35
38
Variable selling expenses
32
28
Common fixed expenses
35
30
Total cost per unit
$
212
$
159
The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars.
6.
Assume that Cane normally produces and sells 110,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
7.
Assume that Cane normally produces and sells 60,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
8.
Assume that Cane normally produces and sells 80,000 Betas and 100,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 13,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?
9.
Assume that Cane expects to produce and sell 100,000 Alphas during the current year. A supplier has offered to manufacture and deliver 100,000 Alphas to Cane for a price of $160 per unit. If Cane buys 100,000 units from the supplier instead of making those units, how much will profits increase or decrease?
10.
Assume that Cane expects to produce and sell 75,000 Alphas during the current year. A supplier has offered to manufacture and deliver 75,000 Alphas to Cane for a price of $160 per unit. If Cane buys 75,000 units from the supplier instead of making those units, how much will profits increase or decrease?
| Cane Company manufactures two products called Alpha and Beta that sell for $240 and $162, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 131,000 units of each product. Its unit costs for each product at this level of activity are given below: |
Solution
6.
Contribution per unit of beta
Selling price pu =$162
less
Direct material (15)
Direct labour (23)
variable mfg oh (25)
variable selling exp (28)
contribution pu 71
If company discontinues beta line
Total contribution lost = 110000*71=$7810000
Add saving in traceable mfg oh 4978000
Decrease in profit $2832000
7.if cane sells 60000 units per year
contribution lost 60000*71= $4260000
Add saving in traceable FOH 131000*38=4978000
Increase in profit =718000$
8.computation of contribution pu of alpha
Sp pu of alpha $240
Less
Direct material $35
Direct labour $48
Variable mfg oh $27
Variable selling oh $32
Contribution pu $98
If co produces 80000 units of beta
profit or loss on discontinuance of beta
contribution lost= 80000*71 = $5680000
add saving in traceable mfg oh=$4978000
Decrease in profit =$702000
Add additional contribution on sale of 13000alpha=13000*98=$1274000
Total increase in profit=$572000
9.calculation cost pu of alpha
Direct materials 35
Direct labour 48
variable mfg oh 27
variable sell oh 32
traceable foh 35
Total cost pu 177
As cost of suplier= $160 pu
Saving pu=$17
increase in profit=$1700000
10.If cane buys 75000 units from supplier
increase n profits=7500017=$1275000
