Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 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 Beta $ 12 20 15 7 5 16 18 12 8 15 10 $ 100 $ 68 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.
Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 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 Beta $ 12 20 15 7 5 16 18 12 8 15 10 $ 100 $ 68 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Gadubhai
![Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product
uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000
units of each product. Its average cost per unit for each product at this level of activity are given below:
Direct materials
Alpha
$ 30
Beta
$ 12
Direct labor
20
15
Variable manufacturing overhead
7
5
Traceable fixed manufacturing overhead
16
18
Variable selling expenses
12
8
Common fixed expenses
15
10
Total cost per unit
$ 100
$ 68
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.
9. Assume that Cane expects to produce and sell 80,000 Alphas during the current year. A supplier has offered to manufacture and
deliver 80,000 Alphas to Cane for a price of $80 per unit. What is the financial advantage (disadvantage) of buying 80,000 units from
the supplier instead of making those units?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2ea24a42-256d-46fc-8da4-e1587c47dd40%2F8c391f47-7654-454f-a670-ad921ea71422%2Fj25wvrk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product
uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000
units of each product. Its average cost per unit for each product at this level of activity are given below:
Direct materials
Alpha
$ 30
Beta
$ 12
Direct labor
20
15
Variable manufacturing overhead
7
5
Traceable fixed manufacturing overhead
16
18
Variable selling expenses
12
8
Common fixed expenses
15
10
Total cost per unit
$ 100
$ 68
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.
9. Assume that Cane expects to produce and sell 80,000 Alphas during the current year. A supplier has offered to manufacture and
deliver 80,000 Alphas to Cane for a price of $80 per unit. What is the financial advantage (disadvantage) of buying 80,000 units from
the supplier instead of making those units?
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