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Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 40 $ 15 Direct labor 30 Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses 26 21 Total cost per unit $ 163 $ 130 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. 18 26 23 30 16 29 19 8. Assume that Cane normally produces and sells 71,000 Betas and 91,000 Alphas per year. If Cane discontinues the Beta product line its sales representatives could increase sales of Alpha by 11,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line? 32 $ 40 30 $ 15 Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials Direct labor 30 Variable manufacturing overhead 18 Traceable fixed manufacturing overhead Variable selling expenses 23 Common fixed expenses 21 Total cost per unit $ 163 $ 130 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. 26 16 29 19 26 + 9. Assume that Cane expects to produce and sell 91000 Alphas during the current year. A supplier has offered to manufacture and deliver 91,000 Alphas to Cane for a price of $124 per unit. What is the financial advantage (disadvantage) of buying 91,000 units from the supplier instead of making those units? Cane Company manufactures two products called Alpha and Beta that sell for $175 and $135, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 117,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 40 $ 15 Direct labor 30 30 Variable manufacturing overhead 18 16 Traceable fixed manufacturing overhead 26 29 Variable selling expenses 23 19 Common fixed expenses 26 21 Total cost per unit $ 163 $ 130 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. 10. Assume that Cane expects to produce and sell 61,000 Alphas during the current year. A supplier has offered to manufacture and deliver 61,000 Alphas to Cane for a price of $124 per unit. What is the financial advantage (disadvantage) of buying 61,000 units from the supplier instead of making those units? 1 Alpha Beta 2 Direct materials $40 $15 3 Direct labor $30 S 30 4 Variable manufacturing overhead $18$ 16 5 Traceable fixed manufacturing overhead $ 26 $ 29 6 Variable selling expenses $ 23 $ 19 7 Common fixed expenses $ 26 $ 21 8 Total cost per unit $163 $130 9 10 Extra Information: 11 Selling price $175 $135 per unit 12 Raw material per pound $5 $5 per pound 13 Production Capacity in units (annually) $117,000 $117,000 units 14 15 16 What is the total amount of traceable fixed manufacturing overhead for each of the two products ? 17 Alpha Beta 18 Traceable fixed manufacturing overhead per unit $ 26 $ 29 19 Annual capacity $117,000 $117,000 20 Total overhead amount $3,042,000 $3,393,000 21 22 23 What is the company's total amount of common fixed expenses? 24 Alpha Beta Total 25 Cost per unit 26 21 26 Units produced $117,000 $117,000 27 Total common fixed expenses $3,042,000 $2,457,000 $5,499,000 28 29 30 What is the financial advantage disadvantage) of accepting the new customer's order? 31 More Information: Alpha 32 Produce and Sell 91,000 33 Additional alphas being bought 21,000 34 Selling prices per unit $124 35 36 Direct labor $30 37 Direct materials $40 38 Variable manufacturing overhead $18 39 Variable selling expenses 23 40 Total relevent cost $111 41 Financial advantage per unit $13 Sheet1 29 30 What is the financial advantage (disadvantage) of accepting the new customer's order? 31 More Information: Alpha 32 Produce and Sell 91,000 33 Additional alphas being bought 21,000 34 Selling prices per unit $124 35 36 Direct labor $30 37 Direct materials $40 38 Variable manufacturing overhead $18 39 Variable selling expenses $ 23 40 Total relevent cost $111 41 Financial advantage per unit $13 42 Total financial advantage $273,000 43 44 45 What is the financial advantage (disadvantage) of accepting the new customer's order? 46 More Information: Beta 47 Produce and Sell 101,000 48 Additional alphas being bought 3,000 49 Selling prices per unit $59. 50 51 Direct labor $ 30 52 Direct materials $15 53 Annual capacity $ 16 54 19 55 Total relevent cost $ 80 56 Financial disavantage per unit ($21) 57 Total financial disadvantage ($63,000) 58 59 60 What is the financial advantage (disadvantage) of accepting the new customer's order? 61 info: 62 Additional sales (units) 21,000 63 Selling price of new order $124 64 Decrease in regular sales (unit) 10,000 65 Price of regular sales $175 66 67 Variabi S 68 73 What is the financial advantage (disadvantage) of discontinuing the Beta product line ? 74 Details Per unit 101,000 75 Sales revenue $135 $13,635,000 76 Variable cost: 77 Direct materials $15 $1,515,000 78 Direct labor $ 30 $3,030,000 79 Variable manufacturing overhead $ 16 $ 1,616,000 80 Variable selling expense $ 19 $ 1,919,000 81 Total variable cost $80 $8,080,000 82 CM per unit $55 $5,555,000 83 Traceable fixed manufacturing overhead $3,393,000 84 Loss income ($2,162,000) 85 86 87 What is the financial advantage (disadvantage) of discontinuing the Beta product line? 88 Details Per unit 51,000 89 Sales revenue $135 $6,885,000 90 Variable cost: 91 Direct materials $15 $765,000 92 Direct labor $ 30 $ 1,530,000 93 Variable manufacturing overhead $ 16 $ 816,000 94 Variable selling expense $ 19 $ 969,000 95 Total variable cost $80 $4,080,000 96 CM per unit $55 $2,805,000 97 Traceable fixed manufacturing overhead $3,393,000 98 Loss income $588,000) 99 100 What is the financial advantage (disadvantage) of discontinuing the Beta product line? 101 102 103 104 What is the financial advantage (disadvantage) of buying 91,000 units from the supplier instead of making those units ? 105 106

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