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Cane Company manufactures two products called Alpha and Beta that sell for $170 and $130, respectively. Each prod uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 116,00 units of each product. Its average cost per unit for each product at this level of activity is given below:

Cane Company manufactures two products called Alpha and Beta that sell for $170 and $130, respectively. Each prod uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 116,00 units of each product. Its average cost per unit for each product at this level of activity is given below:

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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### Cane Company Product Cost Analysis Cane Company manufactures two products, Alpha and Beta, which sell for $170 and $130, respectively. Both products use a single type of raw material costing $6 per pound. The company can produce up to 116,000 units of each product annually. Below is the cost breakdown per unit for each product: | Cost Components | Alpha | Beta | |---------------------------------------|-------|------| | **Direct materials** | $30 | $18 | | **Direct labor** | $30 | $25 | | **Variable manufacturing overhead** | $20 | $15 | | **Traceable fixed manufacturing overhead** | $26 | $28 | | **Variable selling expenses** | $22 | $18 | | **Common fixed expenses** | $25 | $20 | | **Total cost per unit** | $153 | $124 | *Note:* The traceable fixed manufacturing overhead is avoidable, while the common fixed expenses are not. These common expenses have been allocated to the products based on sales dollars. ### Optimization Scenario **Problem:** Assume the customers would purchase up to 90,000 units of Alpha and 70,000 units of Beta. The available raw material for production is limited to 221,000 pounds. The goal is to determine the optimal number of units for each product to maximize profits. **Solution Attempted:** - Produced 2,200 units of Alpha - Produced 11,000 units of Beta **Feedback:** - The answer is marked as complete but not entirely correct. This analysis is crucial for understanding cost structures and optimizing production for profit maximization.
Transcribed Image Text:### Cane Company Product Cost Analysis Cane Company manufactures two products, Alpha and Beta, which sell for $170 and $130, respectively. Both products use a single type of raw material costing $6 per pound. The company can produce up to 116,000 units of each product annually. Below is the cost breakdown per unit for each product: | Cost Components | Alpha | Beta | |---------------------------------------|-------|------| | **Direct materials** | $30 | $18 | | **Direct labor** | $30 | $25 | | **Variable manufacturing overhead** | $20 | $15 | | **Traceable fixed manufacturing overhead** | $26 | $28 | | **Variable selling expenses** | $22 | $18 | | **Common fixed expenses** | $25 | $20 | | **Total cost per unit** | $153 | $124 | *Note:* The traceable fixed manufacturing overhead is avoidable, while the common fixed expenses are not. These common expenses have been allocated to the products based on sales dollars. ### Optimization Scenario **Problem:** Assume the customers would purchase up to 90,000 units of Alpha and 70,000 units of Beta. The available raw material for production is limited to 221,000 pounds. The goal is to determine the optimal number of units for each product to maximize profits. **Solution Attempted:** - Produced 2,200 units of Alpha - Produced 11,000 units of Beta **Feedback:** - The answer is marked as complete but not entirely correct. This analysis is crucial for understanding cost structures and optimizing production for profit maximization.
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