Cane Company manufactures two products called Alpha and Beta that sell for $190 and $155, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 122,000 units of each product. Its average cost per unit for each product at this level of activity are given below: AlphaBetaDirect materials$ 40$ 24Direct labor3428Variable manufacturing overhead2119Traceable fixed manufacturing overhead2932Variable selling expenses2622Common fixed expenses2924Total cost per unit$ 179$ 149 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. 7. Assume that Cane normally produces and sells 54,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

Variable cost means the cost which vary with the level of output and fixed cost means the cost which…

Answered: Cane Company manufactures two products…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter6: Activity-based, Variable, And Absorption Costing

Section: Chapter Questions

Problem 2PB: Five Card Draw manufactures and sells 10,000 units of Aces, which retails for $200, and 8,000 units...

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Cane Company manufactures two products called Alpha and Beta that sell for $190 and $155, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 122,000 units of each product. Its average cost per unit for each product at this level of activity are given below:

	Alpha	Beta
Direct materials	$ 40	$ 24
Direct labor	34	28
Variable manufacturing overhead	21	19
Traceable fixed manufacturing overhead	29	32
Variable selling expenses	26	22
Common fixed expenses	29	24
Total cost per unit	$ 179	$ 149

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.

7. Assume that Cane normally produces and sells 54,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

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