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Cane Company manufactures two products called Alpha and Beta that sell for $125 and $85, respectively....

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Accounting

Cane Company manufactures two products called Alpha and Betathat sell for $125 and $85, respectively. Each product uses onlyone type of raw material that costs $6 per pound. The company hasthe capacity to annually produce 101,000 units of each product. Itsunit costs for each product at this level of activity are givenbelow: Alpha Beta Direct materials $ 30 $ 12 Direct labor 21 20Variable manufacturing overhead 8 6 Traceable fixed manufacturingoverhead 17 19 Variable selling expenses 13 9 Common fixed expenses16 11 Total cost per unit $ 105 $ 77 The company considers itstraceable fixed manufacturing overhead to be avoidable, whereas itscommon fixed expenses are deemed unavoidable and have beenallocated to products based on sales dollars. Required: Assume thatCane’s customers would buy a maximum of 81,000 units of Alpha and61,000 units of Beta. Also assume that the company’s raw materialavailable for production is limited to 161,000 pounds. What is themaximum contribution margin Cane Company can earn given the limitedquantity of raw materials? What is the Total Contribution Margin?$

Answer & Explanation Solved by verified expert
4.4 Ratings (1061 Votes)

Computation of Contribution margin per Unit
Alpha Beta
Selling price per unit $125 $85
Less: Variable costs
Direct materials $30 $12
Direct labor $21 $20
Variable manufacturing overhead $8 $6
Variable selling expenses $13 $9
Total variable expenses $72 $47
Unit contribution margin $53 $38
Raw Material Required per Unit
(30/6), (12/6)		 5 2
Contribution per Pound of Raw material $10.60 $19.00
Rank II I
Allocation of Raw Material & identification of sales mix
Raw material Available 161000
Raw material Used for Beta 122000
( 61000 Unit X 2)
Balance Raw material 39000
No. of Unit Alpha can be Produced
( 39000/5)		 7800
Computation of Maximum and total contribution can be earned with limited resources
Alpha Beta Total
Allocation of Raw Material ( Pound) 39000 122000 161000
Contribution per Pound $10.60 $19.00
Maximum Contribution can be earned $4,13,400.00 $23,18,000.00 $27,31,400.00

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