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Cane Company manufactures two products called Alpha and Beta that sell for $170 and $130, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 116,000 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 $ 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 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.

1. Assume that Cane expects to produce and sell 60,000 Alphas during the current year. A supplier has offered to manufacture and deliver 60,000 Alphas to Cane for a price of $120 per unit. What is the financial advantage (disadvantage) of buying 60,000 units from the supplier instead of making those units?

2. How many pounds of raw material are needed to make one unit of each of the two products?

3. What contribution margin per pound of raw material is earned by each of the two products? (Round your answers to 2 decimal places.)

4. Assume that Canes customers would buy a maximum of 90,000 units of Alpha and 70,000 units of Beta. Also assume that the raw material available for production is limited to 221,000 pounds. How many units of each product should Cane produce to maximize its profits?

5.

a). Assume that Canes customers would buy a maximum of 90,000 units of Alpha and 70,000 units of Beta. Also assume that the raw material available for production is limited to 221,000 pounds. What total contribution margin will it earn?

b). Assume that Canes customers would buy a maximum of 90,000 units of Alpha and 70,000 units of Beta. Also assume that the raw material available for production is limited to 221,000 pounds. If Cane uses its 221,000 pounds of raw materials, up to how much should it be willing to pay per pound for additional raw materials?

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