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The Foundational 15 (Algal [LO13-2, L013-3, LO13-4, LO13-5. LO13-6] [ The following Information applies to the questions displayed below] 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 15 30 $ 18 Direct labor 38 25 Variable manufacturing overhead 28 15 Traceable fixed manufacturing over-head 26 28 Variable selling expenses 22 18 Common fixed expenses 25 20 Total cost per unit :5 153 $ 124 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common xed expenses are unavoidable and have been allocated to products based on sales dollars. Foundational 13-8 (Algo) 8. Assume that Cane normally produces and sells 70,000 Betas and 90,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 14,000 units. What is the financial advantage (disadvantage) of discontinuing the Beta product line? 6 Answer is complete but not entirely correct. 'Financial advantage 0 |$ 2380009 | Solution 8: Computation of Contribution margin per unit Alpha Beta Sales Price 170 130 Variable costs: Direct materials 30 18 Direct labor 30 25 Variable manufacturing overhead 20 15 Variable selling expense 22 18 Total Variable cost 102 76 Contribution margin per unit 68 54 Total Per unit units If Beta division Discontinued: Contribution Margin Lost If Beta Discontinued -54-3780000 Traceable fixed manufacturing overhead Avoided 28 3248000 (Capacity units*Traceable per unit of Beta) Contribution Margin on Additional Alpha units 68 952000 (additional units*CM per unit of alpha) Financial advantage (Disadvantage) 420000