Saved Barlow Company manufactures three products-A, B, and C. The selling price,
ID: 2410212 • Letter: S
Question
Saved Barlow Company manufactures three products-A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow 5160 270 $230 Selling priee Variable expenses 16 80 24 108 90 152 -24. 170 is 36 $100 $5 Direet materials Other variable expenses Total variable expensers nargin 238 37% 23% Contribotion margin ratlo The same rew meterial Is used in all three products. Barlow Company has only 6,000 pounds of raw material on hand and will not be able to obtain any more of t for several weeks due to a strike in its supplier's plant. Management is tryling to decide which product's) to concentrate on next week in filling its backlog of orders. The material costs $8 per pound. Required 1 Calculabe the contribution margin per pound of the constraining resource for each product 2. Assuming that Barlow has unlimited demand for each of its three products, whet is the maximum contribution margin the company can earn when using the 6,000 pounds of raw material on hand? 3. Assuming that Barlow's estimated customer demand is 500 units per product line, what is the maximum contribution margin the compeny can earn when using the 6,000 pounds of rew material on hand? 4. A foreign suppler could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. Assuming Barlows estimated customer demand is 500 units per product ine and that the company has used its 6,000 pounds of raw material In an optimal feshion, what is the highest price Barlow Company should be willing to pay for an additional pound of materials? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Caloulate the contribution margin per pound of the constraining resource for each product. per pound of Required 2 > Prey7 or 12 Next >Explanation / Answer
1.
Direct material used by A = 16/8
= 2 Pounds
Direct material used by B = 80/8
= 10 Pounds
Direct material used by C = 24/8
= 3 Pounds
2.
Total direct material available = 6,000 pounds
Since contribution margin per pound is lowest in case of Product B, hence Product B would not be produced when direct material is limited in supply. Since contribution margin per pound is same in case of product A and product C, hence it does not matter whether to produce Product A or product C.
Hence, maximum contribution margin achievable with direct material of 6,000 pounds = 6,000 x 18
= $108,000
3.
When direct material is 6,000 pounds and maximum possible output is 500 units per product
In this case, first of all product A and C will be produced to the maximum extent and from remaining material , product B will be produced.
Material used in production of Product A = 500 x 2
= 1,000 pounds
Material used in production of Product C = 500 x 3
= 1,500 pounds
Hence, material remaining for the production of product B = 6,000 - 1,000 - 1,500
= 3,500 pounds
Hence output of product B = 3,500/10
= 350 units
Contribution margin will be calculated as under:
Hence, total contribution = 18,000 + 35,000 + 27,000
= $80,000
4.
Since 6,000 pounds material has already been used in production, hence currently no material is available for production. Maximum possible output of product A and Product C has been achieved. Output of product B is 350 units only. Hence 150 more units of product B can be produced with additional material to be bought. Since contribution margin per pound from product B is $10, hence Barlow Company can pay an additional $10 per pound of material over the current cost of material i.e $8 per pound.
Hence, maximum price which Barlow Company can afford for additional material is = $18 per pound
A B C Selling price 160 270 230 Variable expenses: Direct materials 16 80 24 Other variable expenses 108 90 152 Total variable expenses 124 170 176 Contribution margin ( i ) 36 100 54 Material per unit (In pounds) ( ii ) 2 10 3 Contribution margin per pound ( i / ii ) ($) 18 10 18Related Questions
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