Cane Company manufactures two products called Alpha and Beta that sell for $120
ID: 2473802 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 units of each product. Its unit costs for each product at this level of activity are given below: Alpha Beta Direct materials $ 30 $ 12 Direct labor 20 15 Variable manufacturing overhead 7 5 Traceable fixed manufacturing overhead 16 18 Variable selling expenses 12 8 Common fixed expenses 15 10 Total cost per unit $ 100 $ 68 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.
15.Assume that Cane’s customers would buy a maximum of 80,000 units of Alpha and 60,000 units of Beta. Also assume that the company’s raw material available for production is limited to 160,000 pounds. Up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)
Explanation / Answer
Answer:15 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.
Particulars Alpha Regular direct material cost per pound $6 Contribution margin per pound of direct materials 10.2 Maximum price to be paid per pound 16.2