The company considers its traceable fixed manufacturing overhead to be avoidable
ID: 2531708 • Letter: T
Question
The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars.
Questions: (Please show all work/steps) 6. Assume that Cane normally produces and sells 92,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit Alpha Beta $10 21 7 20 10 12 $ 25 17 18 14 17 $113 $ 80Explanation / Answer
Total Variable cost of Beta:
Direct Material 10
Direct Labour 21
Variable mfr overhead 7
Variable selling overhead 10
Total Variable cost 48
Selling Price 90
Contribution per unit 42 (90-48)
Total contribution = 92000 * 42 = $3,864,000
Less: Traceable Fixed Costs = $2,040,000 (102000*20)
Less: common Fixed Costs = $1,224,000 (102000*12)
Net Profit = $600,000
If Beta product line discontinued:
Common Fixed Costs = 1,224,000
Net Advantage (Disadvantage) by discontinuing Beta:
= -600000 - 1224000 = $18,24,000