Barlow Company manufactures three products: A, B, and C. The selling price, vari

Question

Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow Selling price $210 $320 $240 16 64 24 06 132 150 $ 84 $100 $ 84 Direct materials 110 126 Other variable expenses Total variable expenses Contribution margin Contribution margin rato 160 40% 50% 35% The same raw material is used in all three products. Barlow Company has only 5,700 pounds of raw material on hand and will not be able to obtain any more of it for several weeks due to a strike in its supplier's plant Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders The material costs $8 per pound. Required 1. Compute the amount of contribution margin that will be obtained per pound of material used in each product Contribution margin per unit Direct material cost per unit Direct material cost per pound Pounds of material required per una Centribution margn ser pound 22 Compute the amount of contribution margin on each product Comsreution maran per pound 65

Explanation / Answer

Solution:

Part 1 –

Contribution Margin per pound of material used

A

B

C

Contribution Margin per unit (A)

$84.00

$160.00

$84.00

Direct material cost per unit (P)

$16.00

$64.00

$24.00

Direct material cost per pound (D)

$8.00

$8.00

$8.00

Pounds of material required per unit (B=P/D)

2.00

8.00

3.00

Contribution Margin per Pound (A/B)

$42.00

$20.00

$28.00

Part 2a – Amount of Contribution Margin on each product

A

B

C

Contribution Margin per pound

$42.00

$20.00

$28.00

Pounds of material available

5700

5700

5700

Total contribution margin

$239,400

$114,000

$159,600

2b – The product A would be recommended to the company to work on next week since Product A has the highest contribution margin.

Part 3 –

Highest Price per pound = $42 per pound

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Contribution Margin per pound of material used

A

B

C

Contribution Margin per unit (A)

$84.00

$160.00

$84.00

Direct material cost per unit (P)

$16.00

$64.00

$24.00

Direct material cost per pound (D)

$8.00

$8.00

$8.00

Pounds of material required per unit (B=P/D)

2.00

8.00

3.00

Contribution Margin per Pound (A/B)

$42.00

$20.00

$28.00

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