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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:
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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