A. Assume that Cane expects to produce and sell 88,000 Alphas during the current year. A supplier has offered to manufacture and deliver 88,000 Alphas to Cane for a price of $112 per unit. What is the financial advantage (disadvantage) of buying 88,000 units from the supplier instead of making those units? B. Assume that Cane expects to produce and sell 58,000 Alphas during the current year. A supplier has offered to manufacture and deliver 58,000 Alphas to Cane for a price of $112 per unit. What is the financial advantage (disadvantage) of buying 58,000 units from the supplier instead of making those units? C. How many pounds of raw material are needed to make one unit of each of the two products?
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 expects to produce and sell 88,000 Alphas during the current year. A supplier has offered to manufacture and deliver 88,000 Alphas to Cane for a price of $112 per unit. What is the financial advantage (disadvantage) of buying 88,000 units from the supplier instead of making those units?
B. Assume that Cane expects to produce and sell 58,000 Alphas during the current year. A supplier has offered to manufacture and deliver 58,000 Alphas to Cane for a price of $112 per unit. What is the financial advantage (disadvantage) of buying 58,000 units from the supplier instead of making those units?
C. How many pounds of raw material are needed to make one unit of each of the two products?
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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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4069fa52-b27a-46d1-ae2b-57cc56c25309%2Fa72609ca-045e-4e15-8761-1077d41f0fa1%2Fdvs1uq_processed.png&w=3840&q=75)
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