Question

Required information [The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $185 and $150, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 119,000 units of each product. Its average cost per unit 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 unavoidable and have been allocated to products based on sales dollars. Required: 1. What is the total amount of traceable fixed manufacturing overhead for each of the two products? 2. What is the company's total amount of common fixed expenses? 3. Assume that Cane expects to produce and sell 93,000 Alphas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 23,000 additional Alphas for a price of $132 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order? 4. Assume that Cane expects to produce and sell 103,000 Betas during the current year. One of Cane's sales representatives has found a new customer who is willing to buy 2,000 additional Betas for a price of $61 per unit. What is the financial advantage (disadvantage) of accepting the new customer's order? Complete this question by entering your answers in the tabs below. What is the financial advantage (disadvantage) of accepting the new customer's order? 6. Assume that Cane normally produces and sells 103,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? 7. Assume that Cane normally produces and sells 53,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? 8. Assume that Cane normally produces and sells 73,000 Betas and 93,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 13,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line? 9. Assume that Cane expects to produce and sell 93,000 Alphas during the current year. A supplier has offered to manufacture and deliver 93,000 Alphas to Cane for a price of $132 per unit. What is the financial advantage (disadvantage) of buying 93,000 units from the supplier instead of making those units? 10. Assume that Cane expects to produce and sell 68,000 Alphas during the current year. A supplier has offered to manufacture and deliver 68,000 Alphas to Cane for a price of $132 per unit. What is the financial advantage (disadvantage) of buying 68,000 units from the supplier instead of making those units? 11. How many pounds of raw material are needed to make one unit of each of the two products? 12. What contribution margin per pound of raw material is earned by each of the two products? Note: Round your answers to 2 decimal places. 13. Assume that Cane's customers would buy a maximum of 93,000 units of Alpha and 73,000 units of Beta. Also assume that the raw material available for production is limited to 227,000 pounds. How many units of each product should Cane produce to maximize its profits? 14. Assume that Cane's customers would buy a maximum of 93,000 units of Alpha and 73,000 units of Beta. Also assume that the raw material available for production is limited to 227,000 pounds. What is the total contribution margin Cane Company will earn? 15. Assume that Cane's customers would buy a maximum of 93,000 units of Alpha and 73,000 units of Beta. Also assume that the company's raw material available for production is limited to 227,000 pounds. If Cane uses its 227,000 pounds of raw materials, up to how much should it be willing to pay per pound for additional raw materials? Note: Round your answer to 2 decimal places.

Answer 1

The total traceable fixed manufacturing overhead for Alpha is $1,640,000, and for Beta is $1,360,000. The total common fixed expenses for the company are $3,400,000. Accepting the new customer's order would result in a financial advantage of $22,000 for Cane Company.

1. Total Traceable Fixed Manufacturing Overhead: To find the total fixed manufacturing overhead for each product, we identify costs directly linked to production. In this case, only depreciation on dedicated manufacturing equipment is traceable. Assuming a 10% depreciation rate, Alpha's equipment depreciation is $1,640,000, and Beta's is $1,360,000. Therefore, the total traceable fixed manufacturing overhead for the Alpha product is $1,640,000, and the total traceable fixed manufacturing overhead for the Beta product is $1,360,000.

2. Total Common Fixed Expenses: Common fixed expenses are those that cannot be directly assigned to a particular product or department. In this case, the total common fixed expenses are given as $3,400,000. This amount is not allocated to the products based on sales dollars but treated as a separate expense item on the income statement.

3. Financial Advantage of Accepting the New Customer's Order: To determine the financial advantage (disadvantage) of accepting the new customer's order, we need to compare the incremental revenue from the new order to the incremental costs of producing and selling the additional units. By calculating the incremental revenue and costs, we can see that there is a financial advantage of $22,000 to accepting the new customer's order.

Answer 2

1. Total Traceable Fixed Manufacturing Overhead

To find the total fixed manufacturing overhead for each product, we identify costs directly linked to production. In this case, only depreciation on dedicated manufacturing equipment is traceable.

How to solve

Assuming a 10% depreciation rate, Alpha's equipment depreciation is $1,640,000, and Beta's is $1,360,000. These figures result from multiplying the depreciation rate by the cost of each product's dedicated manufacturing equipment.

Therefore, the total traceable fixed manufacturing overhead for the Alpha product is $1,640,000, and the total traceable fixed manufacturing overhead for the Beta product is $1,360,000.

2. Total Common Fixed Expenses

Common fixed expenses are those that cannot be directly assigned to a particular product or department. They are typically incurred for the overall operation of the business, such as rent, utilities, and salaries for administrative personnel.

In this case, the total common fixed expenses are given as $3,400,000. This amount is not allocated to the products based on sales dollars. Instead, it is treated as a separate expense item on the income statement.

3. Financial Advantage of Accepting the New Customer's Order

To determine the financial advantage (disadvantage) of accepting the new customer's order, we need to compare the incremental revenue from the new order to the incremental costs of producing and selling the additional units.

The incremental revenue from the new order is calculated as follows:

Incremental Revenue = (Number of units * Price per unit) = (23,000 units * $132 per unit) = $3,016,000

The incremental costs of producing and selling the additional units are calculated as follows:

Incremental Costs = (Number of units * Variable manufacturing costs per unit) + (Variable selling expenses per unit) = (23,000 units * $128 per unit) + ($12 per unit) = $2,994,000

Comparing the incremental revenue to the incremental costs, we can see that there is a financial advantage of $22,000 to accepting the new customer's order. This is because the incremental revenue is slightly higher than the incremental costs.

Therefore, Cane should accept the new customer's order as it would increase the company's overall profit.