Benoit Company produces three products, A, B, and C. Data concerning the three p
ID: 2425421 • Letter: B
Question
Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit):
Product A B C
Selling price 120 100 110
Variable expenses
Direct Materials 36 30 7.7
Other Variable Expenses 36 45 69.30
Total Variable Expenses 72 75 77
Contribution Margin 48 25 33
Contribution Margin Ratio 40 25 30 %
Demand for the company’s products is very strong, with far more orders each month than the company can produce with the available raw materials. The same material is used in each product. The material costs $5 per pound with a maximum of 5,800 pounds available each month.
Required:
a.
Compute contribution margin per pound of materials used. (Round your intermediate calculations and final answers to 2 decimal places.)
Product A _________
Product B__________
Product C __________
b.
Which orders would you advise the company to accept first, those for A, for B, or for C? Which orders second? Third?
Explanation / Answer
1
Calculation of contribution margin per pound of materials used:
A
B
C
Direct Materials Cost per unit (A)
$ 36.00
$ 30.00
$ 7.70
Direct Material costs per pound (B)
$ 5.00
$ 5.00
$ 5.00
Direct Material Pound per unit (C) = A/B
7.20
6.00
1.54
Contribution Margin Per Unit (D)
$ 48.00
$ 25.00
$ 33.00
Contribution margin per pound of materials used = D/C
$ 6.67
$ 4.17
$ 21.43
2
Calculation of Rank or orders for acceptance :
A
B
C
Contribution margin per pound of materials used
$ 6.67
$ 4.17
$ 21.43
Rank (Highest to lowest Cont. Mar. Per Pound)
Second
Third
First
1
Calculation of contribution margin per pound of materials used:
A
B
C
Direct Materials Cost per unit (A)
$ 36.00
$ 30.00
$ 7.70
Direct Material costs per pound (B)
$ 5.00
$ 5.00
$ 5.00
Direct Material Pound per unit (C) = A/B
7.20
6.00
1.54
Contribution Margin Per Unit (D)
$ 48.00
$ 25.00
$ 33.00
Contribution margin per pound of materials used = D/C
$ 6.67
$ 4.17
$ 21.43
2
Calculation of Rank or orders for acceptance :
A
B
C
Contribution margin per pound of materials used
$ 6.67
$ 4.17
$ 21.43
Rank (Highest to lowest Cont. Mar. Per Pound)
Second
Third
First
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