Cane Company manufactures two products called Alpha and Betathat sell for $180 and $145, respectively. Each product uses onlyone type of raw material that costs $6 per pound. The company hasthe capacity to annually produce 118,000 units of each product. Itsunit costs for each product at this level of activity are givenbelow:
Alpha Beta Direct materials $ 36 $ 24 Direct labor 32 27 Variablemanufacturing overhead 19 17 Traceable fixedmanufacturing overhead 27 30 Variable sellingexpenses 24 20 Common fixedexpenses 27 22 Total cost perunit $ 165 $ 140
The company considers its traceable fixed manufacturing overheadto be avoidable, whereas its common fixed expenses are deemedunavoidable and have been allocated to products based on salesdollars.
1. Assume that Cane normally produces and sells 102,000 Betas peryear. If Cane discontinues the Beta product line, how much willprofits increase or decrease?
2. Assume that Cane normally produces and sells 52,000 Betas peryear. If Cane discontinues the Beta product line, how much willprofits increase or decrease?
3. Assume that Cane expects to produce and sell 62,000 Alphasduring the current year. A supplier has offered to manufacture anddeliver 62,000 Alphas to Cane for a price of $128 per unit. If Canebuys 62,000 units from the supplier instead of making those units,how much will profits increase or decrease?
Cane Company manufactures two products called Alpha and Betathat sell for $180 and $145, respectively. Each product uses onlyone type of raw material that costs $6 per pound. The company hasthe capacity to annually produce 118,000 units of each product. Itsunit costs for each product at this level of activity are givenbelow: |
| Alpha | Beta | |||||||
| Direct materials | $ | 36 | $ | 24 | ||||
| Direct labor | 32 | 27 | ||||||
| Variablemanufacturing overhead | 19 | 17 | ||||||
| Traceable fixedmanufacturing overhead | 27 | 30 | ||||||
| Variable sellingexpenses | 24 | 20 | ||||||
| Common fixedexpenses | 27 | 22 | ||||||
| Total cost perunit | $ | 165 | $ | 140 | ||||
The company considers its traceable fixed manufacturing overheadto be avoidable, whereas its common fixed expenses are deemedunavoidable and have been allocated to products based on salesdollars. |
1. Assume that Cane normally produces and sells 102,000 Betas peryear. If Cane discontinues the Beta product line, how much willprofits increase or decrease?
2. Assume that Cane normally produces and sells 52,000 Betas peryear. If Cane discontinues the Beta product line, how much willprofits increase or decrease?
3. Assume that Cane expects to produce and sell 62,000 Alphasduring the current year. A supplier has offered to manufacture anddeliver 62,000 Alphas to Cane for a price of $128 per unit. If Canebuys 62,000 units from the supplier instead of making those units,how much will profits increase or decrease?
Related questions
Cane Company manufactures two products called Alpha and Betathat sell for $215 and $160, respectively. Each product uses onlyone type of raw material that costs $7 per pound. The company hasthe capacity to annually produce 125,000 units of each product. Itsunit costs for each product at this level of activity are givenbelow:
Alpha Beta
| Directmaterials | $ | 42 | $ | 21 | ||||
| Direct labor | 35 | 28 | ||||||
| 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 overheadto be avoidable, whereas its common fixed expenses are deemedunavoidable and have been allocated to products based on salesdollars.
1.Assume that Cane normally produces and sells 106,000 Betas peryear. If Cane discontinues the Beta product line, how much willprofits increase or decrease?
Increase/Decrease______? by _________$?
2.Assume that Cane normally produces and sells 56,000 Betas peryear. If Cane discontinues the Beta product line, how much willprofits increase or decrease?
Profit Increase/decrease_______? by_________$?
Cane Company manufactures two products called Alpha and Betathat sell for $215 and $160, respectively. Each product uses onlyone type of raw material that costs $7 per pound. The company hasthe capacity to annually produce 125,000 units of each product. Itsunit costs for each product at this level of activity are givenbelow:
ALPHA BETA
Direct materials | $ | 42 | $ | 21 | ||||
| Direct labor | 35 | 28 | ||||||
| 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 overheadto be avoidable, whereas its common fixed expenses are deemedunavoidable and have been allocated to products based on salesdollars.
1. Assume that Cane normally produces and sells 76,000 Betas and96,000 Alphas per year. If Cane discontinues the Beta product line,its sales representatives could increase sales of Alpha by 16,000units. If Cane discontinues the Beta product line, how much wouldprofits increase or decrease?
Profit ___ Increase/decrease? by ______?
.
Cane Company manufactures two products called Alpha and Betathat sell for $120 and $80, respectively. Each product uses onlyone type of raw material that costs $6 per pound. The company hasthe capacity to annually produce 100,000 units of each product. Itsunit costs for each product at this level of activity are givenbelow: |
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 | ||||
The company considers its traceable fixed manufacturing overheadto be avoidable, whereas its common fixed expenses are deemedunavoidable and have been allocated to products based on salesdollars. |
7. Assume that Cane normally produces and sells 40,000 Betas peryear. If Cane discontinues the Beta product line, how much willprofits increase or decrease? |
8. Assume that Cane normally produces and sells 60,000 Betas and80,000 Alphas per year. If Cane discontinues the Beta product line,its sales representatives could increase sales of Alpha by 15,000units. If Cane discontinues the Beta product line, how much wouldprofits increase or decrease?
10. | Assume that Cane expects to produce and sell 50,000 Alphasduring the current year. A supplier has offered to manufacture anddeliver 50,000 Alphas to Cane for a price of $80 per unit. If Canebuys 50,000 units from the supplier instead of making those units,how much will profits increase or decrease? |
