Question

Required information [The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $210 and $172, respectively. Each product uses only one type of raw material that costs $8 per pound. The company has the capacity to annually produce 128,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha 40 Beta Direct materials Direct labor $ 24 38 34 Variable manufacturing overhead 25 23 Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses 33 36 30 26 33 28 Total cost per unit $199 $171 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

	Per unit	Total 73000 units
Direct materials	40	2920000
Direct labor	38	2774000
Variable manufacturing overhead	25	1825000
Traceable fixed manufacturing overhead		4224000	=128000*33
Total cost to make		11743000
Total cost to buy		11096000	=73000*152
Financial advantage	647000	=11743000-11096000