FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 107,000 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 | 25 | 20 |
| Variable manufacturing |
12 | 10 |
| Traceable fixed manufacturing overhead | 21 | 23 |
| Variable selling expenses | 17 | 13 |
| Common fixed expenses | 20 | 15 |
| Total cost per unit | $ 125 | $ 91 |
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.
1. Assume that Cane expects to produce and sell 55,000 Alphas during the current year. A supplier has offered to manufacture and deliver 55,000 Alphas to Cane for a price of $100 per unit. What is the financial advantage (disadvantage) of buying 55,000 units from the supplier instead of making those units?
2. How many pounds of raw material are needed to make one unit of each of the two products?
3. What contribution margin per pound of raw material is earned by each of the two products? (Round your answers to 2 decimal places.)
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