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Cane Company manufactures two products called Alpha and Beta that sell for $150...

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Accounting

Cane Company manufactures two products called Alpha and Beta that sell for $150 and $105, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 107,000 units of each product. Its average cost per unit for each product at this level of activity are given below:

Alpha Beta
Direct materials $ 30 $ 10
Direct labor 25 20
Variable manufacturing overhead 12 10
Traceable fixed manufacturing overhead 21 23
Variable selling expenses 17 13
Common fixed expenses 20 15
Total cost per unit $ 125 $ 91

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.

Foundational 11-8 (Algo)

8. Assume that Cane normally produces and sells 65,000 Betas and 85,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 20,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line?

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