Question

Required information [The following information applies to the questions displayed below.] Cane Company manufactures two products called Alpha and Beta that sell for $215 and $160, respectively. Each product uses only one type of raw material that costs $7 per pound. The company has the capacity to annually produce 125,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha $ 42 Beta $ 21 35 28 21 Direct materials Direct labor Variable manufacturing overhead Traceable fixed manufacturing overhead Variable selling expenses Common fixed expenses Total cost per unit 23 31 28 31 26 $154 $190 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. Required: 1. What is the total amount of traceable fixed manufacturing overhead for each of the two products? Alpha Beta Traceable fixed manufacturing overhead

Answer 1

1
	Alpha	Beta
Traceable fixed manufacturing overhead per unit	31	34
X Expected production	125000	125000
Traceable fixed manufacturing overhead	3875000	4250000
2
Total Common fixed expenses	7125000	=125000*(31+26)
3
Variable costs:	Alpha
Direct materials	42
Direct labor	35
Variable manufacturing overhead	23
Variable selling expenses	28
Total variable costs	128
Incremental revenue	3744000	=26000*144
Less: Incremental variable costs	3328000	=26000*128
Net change in income	416000
Financial advantage 416000
4
Variable costs:	Beta
Direct materials	21
Direct labor	28
Variable manufacturing overhead	21
Variable selling expenses	24
Total variable costs	94
Incremental revenue	296000	=4000*74
Less: Incremental variable costs	376000	=4000*94
Net change in income	-80000
Financial (disadvantage) (80000)