Cane Company manufactures two products called Alpha and Beta that sell for $205
ID: 2451168 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $205 and $164, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 127,000 units of each product. Its unit costs for each product at this level of activity are given below:
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.
Assume that Cane’s customers would buy a maximum of 97,000 units of Alpha and 77,000 units of Beta. Also assume that the company’s raw material available for production is limited to 247,000 pounds. Up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)
Cane Company manufactures two products called Alpha and Beta that sell for $205 and $164, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 127,000 units of each product. Its unit costs for each product at this level of activity are given below:
Explanation / Answer
Answer:
The maximum price per pound is computed as follows:
Because the company has satisfied all demand for Betas, it would use additional raw materials to produce Alphas.
Alpha Particulars Amount ($) Regular direct material cost per pound $8 Contribution margin per pound of direct materials $15 [(205-40-37-24-29)/5]=40/8=5 Maximum price to be paid per pound $23