Cane Company manufactures two products called Alpha and Beta that sell for $130 and $90, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 102,000 units of each product. Its average cost per unit for each product at this level of activity are given below: AlphaBetaDirect materials$ 25$ 10Direct labor2221Variable manufacturing overhead177Traceable fixed manufacturing overhead1820Variable selling expenses1410Common fixed expenses1712Total cost per unit$ 113$ 80 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. 6. Assume that Cane normally produces and sells 92,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

Marginal Cost - It is the amount of change in the total cost when the quantity produced are…

Answered: Cane Company manufactures two products…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Cane Company manufactures two products called Alpha and Beta that sell for $130 and $90, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 102,000 units of each product. Its average cost per unit for each product at this level of activity are given below:

	Alpha	Beta
Direct materials	$ 25	$ 10
Direct labor	22	21
Variable manufacturing overhead	17	7
Traceable fixed manufacturing overhead	18	20
Variable selling expenses	14	10
Common fixed expenses	17	12
Total cost per unit	$ 113	$ 80

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.

6. Assume that Cane normally produces and sells 92,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

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