Cane Company manufactures two products called Alpha and Beta that sell for $215 and $160, respectively. Each product uses only one type of raw material that costs $7 per pound. The company has the capacity to annually produce 125,000 units of each product. Its unit costs for each product at this level of activity are given below:
|Variable manufacturing overhead||23||21|
|Traceable fixed manufacturing overhead||31||34|
|Variable selling expenses||28||24|
|Common fixed expenses||31||26|
|Total cost per unit||$||190||$||154|
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?
Traceable fixed manufacturing overhead Alpha ....? Beta ....?
2. What is the companyâs total amount of common fixed expenses?
Total common fixed expenses $........
3. Assume that Cane expects to produce and sell 96,000 Alphas during the current year. One of Cane's sales representatives has found a new customer that is willing to buy 26,000 additional Alphas for a price of $144 per unit. If Cane accepts the customerâs offer, how much will its profits increase or decrease?
Net operating income ....increase or decrease? $......?
4. Assume that Cane expects to produce and sell 106,000 Betas during the current year. One of Caneâs sales representatives has found a new customer that is willing to buy 4,000 additional Betas for a price of $74 per unit. If Cane accepts the customerâs offer, how much will its profits increase or decrease?
Net Operating Incme ....Increase or decrease....? $......?
7. Assume that Cane normally produces and sells 56,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
Profit.....decrease or increase....???? $.......??
8. Assume that Cane normally produces and sells 76,000 Betas and 96,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 16,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?
Profit decrease or increase ...?? $.....???
10. Assume that Cane expects to produce and sell 71,000 Alphas during the current year. A supplier has offered to manufacture and deliver 71,000 Alphas to Cane for a price of $144 per unit. If Cane buys 71,000 units from the supplier instead of making those units, how much will profits increase or decrease?
Profit .increase or decrease ......??? By. $......???
13. Assume that Caneâs customers would buy a maximum of 96,000 units of Alpha and 76,000 units of Beta. Also assume that the companyâs raw material available for production is limited to 246,000 pounds. How many units of each product should Cane produce to maximize its profits?
Units produced ..... Alpha .....$$$, Beta ....$....
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