Cane Company manufactures two products called Alpha and Beta that sell for $225
ID: 2465864 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $225 and $175, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 130,000 units of each product. Its unit costs for each product at this level of activity are given below: Direct materials Alpha:$42 Beta:$24 Direct labor Alpha: 42 Beta:32 Variable manufacturing overhead Alpha 26 Beta 24 Traceable fixed manufacturing overhead Alpha 34 Beta 37 Variable selling expenses Alpha 31 Beta 27 Common fixed expenses Alpha 34 Beta 29 Total cost per unit: Alpha: 209 Beta 173 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. 1. What is the total amount of traceable fixed manufacturing overhead for the Alpha product line and for the Beta product line? Traceable fixed manufacturing overhead Alpha? Beta? 2. What is the company’s total amount of common fixed expenses? 3. Assume that Cane expects to produce and sell 99,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 29,000 additional Alphas for a price of $156 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease? Net operating income__ by __ 4. Assume that Cane expects to produce and sell 109,000 Betas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 5,000 additional Betas for a price of $82 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease? Net operating income __ by__ 5. Assume that Cane expects to produce and sell 114,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 29,000 additional Alphas for a price of $156 per unit. If Cane accepts the customer’s offer, it will decrease Alpha sales to regular customers by 13,000 units. 5a.Calculate the incremental net operating income if the order is accepted? Incremental net operating income? 6. Assume that Cane normally produces and sells 109,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?profit __ by __ 7. Assume that Cane normally produces and sells 59,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease? profit __ by__ 8. Assume that Cane normally produces and sells 79,000 Betas and 99,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 12,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease? profit __ by __ 9. Assume that Cane expects to produce and sell 99,000 Alphas during the current year. A supplier has offered to manufacture and deliver 99,000 Alphas to Cane for a price of $156 per unit. If Cane buys 99,000 units from the supplier instead of making those units, how much will profits increase or decrease? profit __ by__ 10.Assume that Cane expects to produce and sell 74,000 Alphas during the current year. A supplier has offered to manufacture and deliver 74,000 Alphas to Cane for a price of $156 per unit. If Cane buys 74,000 units from the supplier instead of making those units, how much will profits increase or decrease?profit __ by__ 11. How many pounds of raw material are needed to make one unit of Alpha and one unit of Beta? Pounds of raw materials per unit Alpha? Beta? 12. What contribution margin per pound of raw materials is earned by Alpha and beta? Contribution margin per pound: Alpha? Beta? 13. Assume that Cane’s customers would buy a maximum of 99,000 units of Alpha and 79,000 units of Beta. Also assume that the company’s raw material available for production is limited to 344,000 pounds. How many units of each product should Cane produce to maximize its profits? Units produced: Alpha? Beta?
Explanation / Answer
1 Total amount of traceable fixed manufacturing overhead for product lines Alpha Product line = Annual Capacity*Traceable Fixed Manufacturing Overhead Per Unit = 130,000 units*$34 = $4,420,000 Beta Product line = Annual Capacity*Traceable Fixed Manufacturing Overhead Per Unit = 130,000 units*$37 = $4,810,000 2 The company’s total amount of common fixed expenses Alpha Product line = Annual Capacity*Common fixed expenses Per Unit = 130,000 units*$34 = $4,420,000 Beta Product line = Annual Capacity*Traceable Fixed Manufacturing Overhead Per Unit = 130,000 units*$29 = $3,770,000 The company’s total amount of common fixed expenses = $4,420,000+$3,770,000 The company’s total amount of common fixed expenses = $8,190,000 3 Particulars Amount Incremental Sales (29,000*156) $4,524,000 Increment Variable and fixed Costs Direct Material (29,000*42) $1,218,000 Direct Labor (29,000*42) $1,218,000 Variable Manufacturing Overhead (29,000*26) $754,000 Traceable fixed expenses (29,000*34) $986,000 Variable Selling Expenses (29,000*31) $899,000 Total Incremental Variable Cost $5,075,000 Decrease in Profits ($551,000) Therefore, Net operating income Decrease by $551,000 Note: Traceable fixed expenses are avoidable expenses. Therefore, if the extra order accepted traceable fixed expenses will be incurred otherwise it will not be incurred. Therefore, it is relevant cost. 4 Particulars Amount Incremental Sales (5,000*82) $410,000 Increment Variable and fixed Costs Direct Material (5,000*24) $120,000 Direct Labor (5,000*32) $160,000 Variable Manufacturing Overhead (5,000*24) $120,000 Traceable fixed expenses (5000*37) $185,000 Variable Selling Expenses (5,000*27) $135,000 Total Incremental Variable Cost $720,000 Incremental Profits ($310,000) Therefore, Net operating income Decrease by $310,000 Note: In a given question maximum sub parts can be answered are four. Please post the remaining questions separately