Cane Company manufactures two products called Alpha and Beta that sell for $240 and $162,...
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Accounting
Cane Company manufactures two products called Alpha and Beta that sell for $240 and $162, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 131,000 units of each product. Its average cost per unit for each product at this level of activity are given below:
Alpha
Beta
Direct materials
$
35
$
15
Direct labor
48
23
Variable manufacturing overhead
27
25
Traceable fixed manufacturing overhead
35
38
Variable selling expenses
32
28
Common fixed expenses
35
30
Total cost per unit
$
212
$
159
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 75,000 Alphas during the current year. A supplier has offered to manufacture and deliver 75,000 Alphas to Cane for a price of $160 per unit. What is the financial advantage (disadvantage) of buying 75,000 units from the supplier instead of making those units?
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