Gadubhai Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each productuses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000units of each product. Its average cost per unit for each product at this level of activity are given below:Direct materialsAlpha$ 30Beta$ 12Direct labor2015Variable manufacturing overhead75Traceable fixed manufacturing overhead1618Variable selling expenses128Common fixed expenses1510Total cost per unit$ 100$ 68The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expensesare unavoidable and have been allocated to products based on sales dollars.9. Assume that Cane expects to produce and sell 80,000 Alphas during the current year. A supplier has offered to manufacture anddeliver 80,000 Alphas to Cane for a price of $80 per unit. What is the financial advantage (disadvantage) of buying 80,000 units fromthe supplier instead of making those units?

Financial advantage (disadvantage) on buying = Relevant cost to make - Cost to buy

Cane Company manufactures two products called Alpha and Beta that sell 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 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 Total cost per unit Alpha $ 30 Beta $ 12 20 15 7 5 16 18 12 8 15 10 $ 100 $ 68 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.

Cane Company manufactures two products called Alpha and Beta that sell 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 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 Total cost per unit Alpha $ 30 Beta $ 12 20 15 7 5 16 18 12 8 15 10 $ 100 $ 68 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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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