Cane Company manufactures two products called Alpha and Beta that sell for $185 and $120, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 112,000 units of each product. Its average cost per unit for each product at this level of activity are given below:
|
Alpha |
Beta |
Direct materials |
|
$ |
30 |
|
|
$ |
10 |
|
Direct labor |
|
|
22 |
|
|
|
29 |
|
Variable manufacturing overhead |
|
|
20 |
|
|
|
13 |
|
Traceable fixed manufacturing overhead |
|
|
24 |
|
|
|
26 |
|
Variable selling expenses |
|
|
20 |
|
|
|
16 |
|
Common fixed expenses |
|
|
23 |
|
|
|
18 |
|
Total cost per unit |
|
$ |
139 |
|
|
$ |
112 |
|
|
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.
Questions:
A.
Assume that Cane normally produces and sells 98,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
B. Assume that Cane normally produces and sells 48,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
C.
Assume that Cane normally produces and sells 68,000 Betas and 88,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 12,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
![Required information<br>[The following information applies to the questions displayed below.]<br>Cane Company manufactures two products called Alpha and Beta that sell for $185 and<br>$120, respectively. Each product uses only one type of raw material that costs $5 per<br>pound. The company has the capacity to annually produce 112,000 units of each<br>product. Its average cost per unit for each product at this level of activity are given<br>below:<br>Direct materials<br>Direct labor<br>Variable manufacturing overhead<br>Traceable fixed manufacturing overhead<br>Variable selling expenses<br>Common fixed expenses<br>II<br>Alpha<br>$ 30<br>22<br>20<br>24<br>20<br>23<br>Beta<br>$ 10<br>29<br>13<br>26<br>16<br>18<br>Total cost per unit<br>$139<br>$112<br>The company considers its traceable fixed manufacturing overhead to be avoidable,<br>whereas its common fixed expenses are unavoidable and have been allocated to<br>products based on sales dollars.<br>6. Assume that Cane normally produces and sells 98,000 Betas per year. What is the financial advantage<br>(disadvantage) of discontinuing the Beta product line?<br>Financial (disadvantage)<br>](https://s3.us-east-1.amazonaws.com/storage.unifolks.com/qimg-008/008_5u28zz0-hcg1k4ul.png)
Extracted text: 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 $120, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 112,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses II Alpha $ 30 22 20 24 20 23 Beta $ 10 29 13 26 16 18 Total cost per unit $139 $112 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. 6. Assume that Cane normally produces and sells 98,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line? Financial (disadvantage)