Cane Company_Alpha and Beta

$21.00

Description

Cane Company manufactures two products called Alpha
and Beta that sale for $120 and $80 respectively. Each product uses only one
type of raw material that costs $6 per pound. The company has the capacity to
annually produce 100,000 units of product. Its unit cost for each product at
this level of activity are given below:

Alpha Beta

Direct Materials 30 12

Direct Labor 20 15

Variable Man. Overhead 7 5

Traceable Fixed 16 18

Variable Selling Exp 12 8

Common Fixed Exp 15 10

Total 100 68

The company considers its traceable fixed
manufacturing overhead to be avoidable, whereas its common fixed expenses are
deemed unavoidable and have been allocated to products based on sales dollars.

1. What
is the total amount of traceable fixed manufacturing overhead for the Alpha
product line and for the Beta product line?

2. What
is the company’s total amount of common fixed expenses? (Alpha & Beta)

3. Assume
that Cane expects to produce and sell 80,000 Alphas during the current year.
One of Cane’s sales representatives has found a new customer that is willing to
buy an additional 10,000 alphas for a price of $80 per unit. If Cane accepts
the offer how much will its profit increase or decrease?

4. Same
as #3 but produce and sell 90,000; customer willing to buy 5000 for a price of
39 per unit. (Profit In or Decre)

5. Same
as #3 but produce and sale 95,000; customer is willing to buy 10,000 for a
price of 80 per unit. If Cane accepts the offer it will decrease Alphas sales
to regular customers by 5000 units. What is the amount of incremental net
operating income if the order is accepted?

6. Assume
that Cane normally produces and sells 90,000 Betas per year. If Cane
discontinues the Beta products line how much will profits increase or decrease?

7. Same
as #6 but produces and sales 40,000 Betas per year? (Inc or Decr)

8. Assume
that Cane normally produces and sales 60,000 Betas and 80,000 Alphas per year. If
Cane discontinues the Beta product line, its Sales Reps could increase sales of
Alpha by 15,000 units. If Cane discontinues the Beta line how much will profits
increase or decrease?

9. Assume
that Cane expects to produce and sell 80,000 Alphas during the current year. A
supplier has offered to manufacture and deliver 80,000 Alphas to Cane for a
price of 80 per unit. If Cane buys 80,000 units from the supplier instead of
making them how much will profits increase or decrease?

10. Same
as #9 but produce and sell 50,000 Alphas; manufacture and deliver 50,000 for a
price of 80 per unit. If Cane buys the units instead of making them how much
will its profits increase or decrease?

11. How
many pounds of raw material are needed to make one unit of Alpha and one unit
of Beta?

12. What
contribution margin per pound of raw material is earned by Alpha and Beta?

13. Assume
that Cane’s customers would buy a maximum of 80,000 units of Alpha and 60,000
of Beta. Also assume that the company’s raw material available for production
is limited to 160,000 pounds. How many units of each product should Cane
produce to maximize profits?

14. Assume
that Cane’s customers would buy a maximum of 80,000 units of Alpha and 60,000
of Beta. Company’s raw material available for production is limited to 160,000
pounds. What is the maximum contribution margin Cane Company can earn given the
limited quantity of raw materials?

15. Same
as #14 but up to how much should it be willing to pay per pound for additional
raw materials.

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