Cane Company manufactures two products called Alpha and Betathat sell for $120 and $80, respectively. Each product uses onlyone type of raw material that costs $6 per pound. The company hasthe capacity to annually produce 100,000 units of each product. Itsunit costs for each product at this level of activity are givenbelow:
| Alpha | Beta |
| Direct materials | | $ | 30 | | | $ | 12 | |
| Direct labour | | | 20 | | | | 15 | |
| Variable manufacturing overhead | | | 7 | | | | 5 | |
| Traceable fixed manufacturing overhead | | | 16 | | | | 18 | |
| Variable selling expenses | | | 12 | | | | 8 | |
| Common fixed expenses | | | 15 | | | | 10 | |
| | | | | | | | |
| Cost per unit | | $ | 100 | | | $ | 68 | |
| | | | | | | | |
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The company considers its traceable fixed manufacturing overhead tobe avoidable, whereas its common fixed expenses are deemedunavoidable and have been allocated to products based on salesdollars.
6. Assume that Cane normally produces and sells 90,000 Betas peryear. If Cane discontinues the Beta product line, how much willprofits increase or decrease?
7. Assume that Cane normally produces and sells 40,000 Betas peryear. If Cane discontinues the Beta product line, how much willprofits increase or decrease?
8. Assume that Cane normally produces and sells 40,000 Betas peryear. If Cane discontinues the Beta product line, how much willprofits increase or decrease?
9. Assume that Cane expects to produce and sell 80,000 Alphasduring the current year. A supplier has offered to manufacture anddeliver 80,000 Alphas to Cane for a price of $80 per unit. If Canebuys 80,000 units from the supplier instead of making those units,how much will profits increase or decrease?
10. Assume that Cane expects to produce and sell 50,000 Alphasduring the current year. A supplier has offered to manufacture anddeliver 50,000 Alphas to Cane for a price of $80 per unit. If Canebuys 50,000 units from the supplier instead of making those units,how much will profits increase or decrease?
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