Cane Company manufactures two products called Alpha and Beta that sell for $165
ID: 2474254 • Letter: C
Question
Cane Company manufactures two products called Alpha and Beta that sell for $165 and $130, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 113,000 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.
Cane Company manufactures two products called Alpha and Beta that sell for $165 and $130, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 113,000 units of each product. Its unit costs for each product at this level of activity are given below:
Explanation / Answer
Profit if Beta is manufactured :
contribution margin = 130 -80 =50 [Variable cost = 24+25+14+17 = 80]
Fixed traceable cost = 27*49000 = 1323000
Fixed common cost = 19*49000 = 931000
Profit = ( 49000*50 ) - 1323000-931000
= 2450000-2254000
= -196000
If Beta is discontinued :Loss = Common cost = - $ 931000
so profit will decrease by (931000 -196000) =$ 735000 if Beta is discontinued .