Cane Company manufactures two products called Alpha and Betathat sell for $120 and $80, respectively. Each product uses onlyone type of raw material that costs $6 per pound. The company hasthe capacity to annually produce 100,000 units of each product. Itsaverage cost per unit for each product at this level of activityare given below:

	Alpha				Beta
Direct materials		$	30			$	12
Direct labor			20				15
Variable manufacturing overhead			7				5
Traceable fixed manufacturing overhead			16				18
Variable selling expenses			12				8
Common fixed expenses			15				10
Total cost per unit		$	100			$	68

The company considers its traceable fixed manufacturing overheadto be avoidable, whereas its common fixed expenses are unavoidableand have been allocated to products based on sales dollars.

Foundational 11-4

4. Assume that Cane expects to produce and sell 90,000 Betasduring the current year. One of Cane’s sales representatives hasfound a new customer who is willing to buy 5,000 additional Betasfor a price of $39 per unit. What is the financial advantage(disadvantage) of accepting the new customer's order?

5. Assume that Cane expects to produce and sell 95,000 Alphasduring the current year. One of Cane’s sales representatives hasfound a new customer who is willing to buy 10,000 additional Alphasfor a price of $80 per unit; however pursuing this opportunity willdecrease Alpha sales to regular customers by 5,000 units.

a. What is the financial advantage (disadvantage) of acceptingthe new customer’s order?

b. Based on your calculations above should the special order beaccepted?

7. Assume that Cane normally produces and sells 40,000 Betas peryear. What is the financial advantage (disadvantage) ofdiscontinuing the Beta product line?

8. Assume that Cane normally produces and sells 60,000 Betas and80,000 Alphas per year. If Cane discontinues the Beta product line,its sales representatives could increase sales of Alpha by 15,000units. What is the financial advantage (disadvantage) ofdiscontinuing the Beta product line?

9. Assume that Cane expects to produce and sell 80,000 Alphasduring the current year. A supplier has offered to manufacture anddeliver 80,000 Alphas to Cane for a price of $80 per unit. What isthe financial advantage (disadvantage) of buying 80,000 units fromthe supplier instead of making those units?

10. Assume that Cane expects to produce and sell 50,000 Alphasduring the current year. A supplier has offered to manufacture anddeliver 50,000 Alphas to Cane for a price of $80 per unit. What isthe financial advantage (disadvantage) of buying 50,000 units fromthe supplier instead of making those units?

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

13. Assume that Cane’s customers would buy a maximum of 80,000units of Alpha and 60,000 units of Beta. Also assume that the rawmaterial available for production is limited to 160,000 pounds. Howmany units of each product should Cane produce to maximize itsprofits?

14. Assume that Cane’s customers would buy a maximum of 80,000units of Alpha and 60,000 units of Beta. Also assume that the rawmaterial available for production is limited to 160,000 pounds.What total contribution margin will it earn?

15. Assume that Cane’s customers would buy a maximum of 80,000units of Alpha and 60,000 units of Beta. Also assume that the rawmaterial available for production is limited to 160,000 pounds. IfCane uses its 160,000 pounds of raw materials, up to how muchshould it be willing to pay per pound for additional rawmaterials?