Cane Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 units of each product. Its unit costs for each product at this level of activity are 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 overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars.
Required:
Assume that Cane’s customers would buy a maximum of 80,000 units of Alpha and 60,000 units of Beta. Also assume that the company’s raw material available for production is limited to 160,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?
Total Contribution Margin $
I obviously got it wrong but here is my work.
40,000 (alpha) X $120 = 4,800,000 60,000 (beta) x $80 = $4,800,000
Variable Incremental Cost Variable Inc. Cost
(30+20+7+12)(40,000) = $2,760,000 (12+15+5+8)(60,000) = 2,400,000
CM = 2,040,000 CM= 2,400,000
CM(a) + CM (b) = 4,440,000 :?