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Vika [28.1K]
3 years ago
12

Cane Company manufactures two products called Alpha and Beta that sell for $195 and $150, respectively. Each product uses only o

ne type of raw material that costs $5 per pound. The company has the capacity to annually produce 123,000 units of each product. Its unit costs for each product at this level of activity are given below:
Alpha Beta
Direct materials $40 $15
Direct labor 34 28
Variable manufacturing overhead 22 20
Traceable fixed manufacturing overhead 30 33
Variable selling expenses 27 23
Common fixed expenses 30 25
Total cost per unit $183 $144

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

a. Assume that Cane normally produces and sells 75,000 Betas and 95,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 15,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?

b. Assume that Cane expects to produce and sell 95,000 Alphas during the current year. A supplier has offered to manufacture and deliver 95,000 Alphas to Cane for a price of $140 per unit. If Cane buys 95,000 units from the supplier instead of making those units, how much will profits increase or decrease?

c. Assume that Cane expects to produce and sell 70,000 Alphas during the current year. A supplier has offered to manufacture and deliver 70,000 Alphas to Cane for a price of $140 per unit. If Cane buys 70,000 units from the supplier instead of making those units, how much will profits increase or decrease?

d. How many pounds of raw material are needed to make one unit of Alpha and one unit of Beta?

e. What contribution margin per pound of raw material is earned by Alpha and Beta?

f. Assume that Cane's customers would buy a maximum of 95,000 units of Alpha and 75,000 units of Beta. Also assume that the company's raw material available for production is limited to 245,000 pounds. How many units of each product should Cane produce to maximize its profits?

g. Assume that Cane's customers would buy a maximum of 95,000 units of Alpha and 75,000 units of Beta. Also assume that the company's raw material available for production is limited to 245,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?

h. Assume that Cane's customers would buy a maximum of 95,000 units of Alpha and 75,000 units of Beta. Also assume that the company's raw material available for production is limited to 245,000 pounds. Up to how much should it be willing to pay per pound for additional raw materials?

Business
1 answer:
Savatey [412]3 years ago
6 0

Answer and explanation:

a.

the table below shows the impact of dropping beta product

Loss of Contribution Margin if Beta is Dropped (75,000*64) -$4,800,000

Traceable Fixed Manufacturing Overhead (123,000*33)          $4,059,000

Incremental Contribution Margin from Additional Alpha Sales (15,000*72)

                                                                                                        $1,080,000

Increase in Net Operating Income if Beta is Dropped          $339,000

Notes:

Contribution Margin Per Unit (Beta) = 150 (Selling Price) - 15 (Direct Material) - 28 (Direct Labor) - 20 (Variable Manufacturing Overhead) - 23 (Variable Selling Expenses) = $64 per unit

Contribution Margin Per Unit (Alpha) = 195 (Selling Price) - 40 (Direct Material) - 34 (Direct Labor) - 22 (Variable Manufacturing Overhead) - 27 (Variable Selling Expenses) = $72 per unit

check the attached files for additional details

where 9=b, 10=c, etc

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Alexxandr [17]

Answer:

a).

  • Labor hours productivity=3.500
  • Multi-factor productivity=2.423

b). The reduction in labor hours per employee per week to achieve this goal=15.735 hours

c). The maximum value that the overhead costs per week can be to ensure the multi-factor productivity is at least 1.257=$21,059.666

Explanation:

a).

  • <em>Step 1: Determine the labor hours productivity</em>

Labor output per week=potential leads×fee

where;

potential leads=5% of potential leads, and potential leads=3,000

potential leads=5%×3,000

potential leads=(5/100)×3,000=150

one-time fee=$70

replacing;

Labor output per week=70×150=$10,500

Labor input per week=cost per hour per employee×number of employees×number of hours worked

where;

cost per hour per employee=$25

number of employees=3

number of hours worked=40

replacing;

Labor input per week=25×3×40=$3,000

Labor hours productivity=labor output per week/labor input per week

Labor hours productivity=10,500/3,000=3.500

  • <em>Step 2: Determine the multi-factor productivity</em>

Multi-factor productivity=Generated fees/(labor cost+material cost+overhead cost)

where;

generated fees=number of employees×potential leads×potential ratio×fee

number of employees=3, potential leads=3,000, potential ratio=5%=5/100=0.05, fee=$70

generated fees=3×3,000×0.05×70=$31,500

Labor cost=$3,000

Material cost=$1,000

Overhead cost=$9,000

Total cost=3,000+1,000+9,000=$13,000

replacing;

Multi-factor productivity=31,500/13,000=2.423

b). Increasing the multi-factor productivity (MP) by 10%

New MP=(110/100)×2.423=2.665

New MP=generated fees/labor cost+material cost+overhead cost

labor cost=cost per hour per employee×number of employees×number of hours worked

where;

cost per hour per employee=$25

number of employees=3

number of hours worked=h

labor cost=25×3×h=75 h

material cost=$1,000

overhead cost=$9,000

generated fees=$31,500

New MP=2.665

replacing;

2.665=31,500/{(75 h)+(1,000)+(9,000)}

2.665=31,500/75 h+10,000

2.665(75 h+10,000)=31,500

199.875 h+26,650=31,500

199.875 h=31,500-26,650

199.875 h=4,850

h=4,850/199.875

h=24.265

New labor hours=24.265 hours per week

Initial labor hours=40 hours per week

Reduction in labor hours=Initial labor hours-new labor hours

Reduction in labor hours=(40-24.265)=15.735

The reduction in labor hours per employee per week to achieve this goal=15.735 hours

c). Using a multi-factor of 1.257

MP=generated fees/labor cost+material cost+overhead cost

where;

MP=1.257

generated fees=$31,500

Labor cost=$3,000

Material cost=$1,000

Overhead cost=c

replacing;

1.257=31,500/(c+3,000+1,000)

1.257=31,500/c+4,000

1.257(c+4,000)=31,500

1.257 c+5,028=31,500

1.257 c=31,500-5,028

1.257 c=26,472

c=26,472/1.257=21,059.666

The maximum value that the overhead costs per week can be to ensure the multi-factor productivity is at least 1.257=$21,059.666

8 0
3 years ago
You have two choices for how you are going to spend Saturday evening. You can go to the pub with your friends, which will cost y
icang [17]

Answer:

b. The economic cost of going to the pub is £40.

Explanation:

The correct option is - b. The economic cost of going to the pub is £40.

Reason -

Economic cost = Cost actually incurred to choose an option + opportunity cost

Now,

We know that

Opportunity cost is the value of next best alternative forgone.

Now,

Net benefits while the person going to Pub = 50 - 30 = £20

Net benefits while the person going to Theatre = 60 - 50 = £10

So,

The opportunity cost = £20 - £10 = £10

∴ we get

Economic cost of going to the Pub= £30 + £10 = £40

3 0
2 years ago
Liquidating Partnerships—Deficiency Prior to liquidating their partnership, Wakefield and Barns had capital accounts of $105,000
sammy [17]

Answer:

Liquidating Partnerships

a. The amount of Barn's deficiency is:

= $5,000.

b. The amount distributed to Wakefield, assuming that Barns is unable to satisfy the deficiency is:

= $40,000.

Explanation:

a) Data and Calculations:

Sharing of profits and losses = 1:1

                                           Wakefield     Barns      Total

Capital account balances $105,000   $55,000 $160,000

Proceeds from partnership assets =                      40,000

Loss from sale of partnership assets =                120,000

Sharing of loss equally      -60,000     -60,000  -120,000

Capital account balances $45,000     ($5,000)

Distribution to Wakefield   40,000

Barn's capital account deficiency        $5,000          

b) When Barn is not able to satisfy his capital deficiency after the equal sharing of the loss from the sale of the partnership assets, the amount distributed to Wakefield is reduced by Barn's deficiency.  Therefore, Wakefield will be paid cash of $40,000 since there are no liabilities.

8 0
3 years ago
A company is considering an iron ore extraction project that requires an initial investment of $504,000 and will yield annual ca
Lubov Fominskaja [6]
This is it with working.

4 0
2 years ago
The following information relates to next year's projected operating results of the Children's Division of Grunge Clothing Corpo
Elodia [21]

Answer:

a. 50,000 increase

Explanation:

the company will save money by discontinuing this division since currently it is losing $300,000, but if it discontinues this division, it will only lose $250,000 which means that operating income will increase by $50,000

differential analysis:

                                      option 1                     option 2                 differential

                                      continue operating  discontinue oper.  amount

contribution margin      $200,000                 $0                          ($200,000)

fixed expenses            <u>($500,000)                ($250,000)             $250,000</u>

net change                   ($300,000)                ($250,000)              $50,000

7 0
2 years ago
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