Cane Company manufactures two products called Alpha and Betathat sell for $165 and $130, respectively. Each product uses onlyone type of raw material that costs $8 per pound. The company hasthe capacity to annually produce 113,000 units of each product. Itsaverage cost per unit for each product at this level of activityare given below:
| Alpha | Beta |
| Direct materials | | $ | 40 | | | $ | 24 | |
| Directlabor | | | 29 | | | | 25 | |
| Variablemanufacturing overhead | | | 15 | | | | 14 | |
| Traceable fixedmanufacturing overhead | | | 25 | | | | 27 | |
| Variable sellingexpenses | | | 21 | | | | 17 | |
| Common fixedexpenses | | | 24 | | | | 19 | |
| Total cost perunit | | $ | 154 | | | $ | 126 | |
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The company considers its traceable fixed manufacturing overheadto be avoidable, whereas its common fixed expenses are unavoidableand have been allocated to products based on sales dollars.
1-1. Assume that Cane normally produces and sells 69,000 Betasand 89,000 Alphas per year. If Cane discontinues the Beta productline, its sales representatives could increase sales of Alpha by13,000 units. What is the financial advantage (disadvantage) ofdiscontinuing the Beta product line?
1-2. Assume that Cane expects to produce and sell 89,000 Alphasduring the current year. A supplier has offered to manufacture anddeliver 89,000 Alphas to Cane for a price of $116 per unit. What isthe financial advantage (disadvantage) of buying 89,000 units fromthe supplier instead of making those units?
1-3. Assume that Cane expects to produce and sell 59,000 Alphasduring the current year. A supplier has offered to manufacture anddeliver 59,000 Alphas to Cane for a price of $116 per unit. What isthe financial advantage (disadvantage) of buying 59,000 units fromthe supplier instead of making those units?
2. How many pounds of raw material are needed to make one unitof each of the two products? (Alpha / Beta)
