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Requlred Information The following information applies to the questions displayed below] Cane Company manufactures two products called Alpha and Beta that sell for $225 and $175, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 130,000 units of each product. Its average cost per unit for each product at this level of activity are given below.

Requlred Information The following information applies to the questions displayed below] Cane Company manufactures two products called Alpha and Beta that sell for $225 and $175, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 130,000 units of each product. Its average cost per unit for each product at this level of activity are given below.

FINANCIAL ACCOUNTING
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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**Required Information** (The following information applies to the questions displayed below.) Cane Company manufactures two products called Alpha and Beta that sell for $225 and $175, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 130,000 units of each product. Its average cost per unit for each product at this level of activity is given below: | Cost Type | Alpha | Beta | |------------------------------------------|-------|------| | Direct materials | $42 | $24 | | Direct labor | $42 | $32 | | Variable manufacturing overhead | $26 | $24 | | Traceable fixed manufacturing overhead | $34 | $37 | | Variable selling expenses | $31 | $27 | | Common fixed expenses | $34 | $29 | | Total cost per unit | $209 | $173 | 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. Assume that Cane normally produces and sells 59,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
Transcribed Image Text:**Required Information** (The following information applies to the questions displayed below.) Cane Company manufactures two products called Alpha and Beta that sell for $225 and $175, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 130,000 units of each product. Its average cost per unit for each product at this level of activity is given below: | Cost Type | Alpha | Beta | |------------------------------------------|-------|------| | Direct materials | $42 | $24 | | Direct labor | $42 | $32 | | Variable manufacturing overhead | $26 | $24 | | Traceable fixed manufacturing overhead | $34 | $37 | | Variable selling expenses | $31 | $27 | | Common fixed expenses | $34 | $29 | | Total cost per unit | $209 | $173 | 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. Assume that Cane normally produces and sells 59,000 Betas per year. What is the financial advantage (disadvantage) of discontinuing the Beta product line?
Expert Solution
Step 1

financial advantage (disadvantage) of discontinuing the Beta product line

Beta = 130000 * $37 = $4,810,000

= $4,810,000( 175-24-32-24-27 )*59000

 

= $798,000

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