Question

Required information (The following information applies to the questions displayed below.) Cane Company manufactures two products called Alpha and Beta that sell for $150 and $110, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 108,000 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 26 13 22 18 21 $130 Beta $ 15 22 11 24 14 16 $102 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.

Answer 1

1.

Total amount of traceable fixed manufacturing overhead for the Alpha product line = 108000*$22= $2376000

Total amount of traceable fixed manufacturing overhead for the Beta product line = 1080000*$24 = $2592000

.

3:

Contribution margin per unit on special order of alpha= Selling price - Variable cost per unit

Contribution margin per unit on special order of alpha = $104 - ($30+ $26+ $13+ $18) = $17 per unit

.

If Cane accepts the customer’s offer for 16000 alpha, then increase in operating income = 18000 *$17 = $306000

.

Financial advantages = $306000

.

4:

Contribution margin per unit on special order of Beta = Selling price - Variable cost per unit

Contribution margin per unit on special order of Beta = $45 - ($15+ $22+ $11+ $14) = $-17 per unit

.

If Cane accepts the customer’s offer for 2000 beta , then decrease in operating income = 2000 *$17 = $34000

..

Financial disadvantages = $34000

.

5:

.

A.

Regular contribution margin per unit for Alpha = $150 - (($30+ $26+ $13+ $18) = $63 per unit

.

Contribution margin per unit on special order of alpha= Selling price - Variable cost per unit  $104 - ($30+ $26+ $13+ $18) = $17 per uni

.

If Cane accepts the customer’s offer for 16000 alpha, additional contribution margin from special order = 16000 * $17 = $306000

.

If Cane accept special order then loss of contribution margin on regular order = 9000 * 63 = 567000

.

Incremental net operating income if the order is accepted = $306000 - $567000 = ($261000)

.

Financial Dis advantages = $261000

.

B.

As there is net financial disadvantage, therefore special order should not be accepted.

.

10.

Differential analysis for Alpha

Direct Materials	$30
Direct Labor	$26
Variable Manufacture Overhead	$13
Unit Variable manufacture Cost	$69
Multiply: Units Normally required	56000
Variable Manufacture Cost for Manufacture	$3864000
Traceable Fixed per unit	22
Multiply: Annual Capacity	108000
Fixed Manufacture Cost for Manufacture	$2376000
Variable Manufacture Cost for Manufacture	$3864000
Fixed Manufacture Cost for Manufacture	$2376000
Total relevant cost for Manufacture	$6240000
Purchase price per unit	$104
Multiply: Units Normally required	56000
Total relevant cost for Purchase	$5824000
Less: Total relevant cost for Manufacture	$6240000
Financial Advantages	$416000