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. What contribution margin per pound of raw material is earned by each of the two products?
(Round your answers to 2 decimal places.)
B. Assume that Cane’s customers would buy a maximum of 88,000 units of Alpha and 68,000 units of Beta. Also assume that the company’s raw material available for production is limited to 172,000 pounds. How many units of each product should Cane produce to maximize its profits?
C. Assume that Cane’s customers would buy a maximum of 88,000 units of Alpha and 68,000 units of Beta. Also assume that the company’s raw material available for production is limited to 172,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?
![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 $5 per<br>pound. The company has the capacity to annually produce 112,000 units of each<br>product. Its average cost per unit for each product at this level of activity are given<br>below:<br>Direct materials<br>Direct labor<br>Variable manufacturing overhead<br>Traceable fixed manufacturing overhead<br>Variable selling expenses<br>Common fixed expenses<br>Alpha<br>$ 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>](https://s3.us-east-1.amazonaws.com/storage.unifolks.com/qimg-008/008_vjfbzz0-c3hjeqv2.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 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.