Introduction to Managerial Accounting: The Foundational 15 Unit 7 Chapter 10 - Cane Company

Introduction to Managerial Accounting The Foundational 15 Unit 7 Chapter 10 Cane Company manufacturers two products called Alpha and Beta that sell 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 each product. Its unit costs for each product at this level of activity are given below 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. Alpha Beta Direct Materials 30 12 Direct labor 20 15 Variable manufacturing overhead 7 5 Traceable fixed manufacturing overhead 16 18 Variable selling expenses 12 8 Common Fixed Expenses 15 10 Total cost per unit $100 $68 Required: 1. What is the total amount of traceable fixed manufacturing overhead for the Alpha product line and the Beta product line? 2. What is the company's total amount of common fixed expenses? 3. Assume that cane expects to produce and sell 80,000 Alphas during the current year. One of the Canes sales reps has found a customer that is willing to buy an additional 10,000 alphas for the a price of $80 per unit. If cane accepts this offer how much profit increase or decrease? 4. Assume that cane expects to produce and sell 90,000 Alphas during the current year. One of the Canes sales reps has found a customer that is willing to buy an additional 5,000 alphas for the price of $39 per unit. If cane accepts this offer how much profit increase or decrease? 5. Assume that cane expects to produce and sell 95,000 Alphas during the current year. One of the Canes sales reps has found a customer that is willing to buy an additional 10,000 alphas for the a price of $80 per unit. If Cane accepts this offer it will decrease alpha sales to regular customers by 5000 units. Should cane accept this special order? 6. Assume that Cane normally produces and sells 90,000 betas per year. If Cane discontinues the beta product line, how much will profits increase or decrease? 7. Assume that Cane normally produces and sells 40,000 betas per year. If Cane discontinues the beta product line, how much will profits increase or decrease? 8. Assume that cane normally produces and sells 60,000 Betas and 80,000 Alphas per year. If Cane discontinues the Beta product line, its sales reps would increase sales of Alpha by 15,000 units. If Cane discontinues the Beta product 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 manucfacture and deliver 80,000 alphas to Cane for $80 per unit. If Cane buys these instead of making those units, how much will profits increase or decrease? 10. Assume that cane expects to produce and sell 50,000 alphas during the current year. A supplier has offered to manucfacture and deliver 50,000 alphas to Cane for $80 per unit. If Cane buys these 50,000 instead of making those units, how much will 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 60,000 units of Beta. Also assume that the company's raw material available for production is limited to 160,000 pounds. How many units fo each product should Cane produce to maximize its profits? 14. If Cane follows your recommendation in requirement 13, what total contribution margin will it earn? 15. If Cane uses its 160,000 pounds of raw materials as you recommended in requirement 13, up to how much should it be willing to pay per pound for additional raw materials?
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