The company considers its traceable fixed manufacturing overhead to be avoidable
ID: 2531709 • 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) 8. Assume that Cane normally produces and sells 62,000 Betas and 82,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 17,000 units. 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
Particulars Alpha Beta A) Selling Price 130 90 Less Variable cost I)Direct materials 25 10 II)Direct labour 22 21 III)Variable overhead 17 7 B)Total variable cost 64 38 Contribution (A-B) 66 52 No of Units 62000 82000 Total contribution 4092000 4264000 Fixed overhead 3570000 3264000 (102,000*(18+17)) (102,000*(20+12)) Profit 522000 1000000 1522000 If cane discontinues beta line then revised profit is as follows Contibution 66 No of units 79000 Total contribution 5214000 Fixed overhead 3570000 Profit 1644000 Less common fixed expense 1224000 420000 Conclusion - Since there is decrese in overall profit due to common fixed expense it is advisable not continue in beta