Benoit Company produces three products, A, B, and C. Data concerning the three p

Question

Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit):


Product
A B C
Selling price $70
$50
$60

Variable expenses:
Direct materials 21.00 15.00 4.20
Other variable expenses 21.00
22.50
37.80

Total variable expenses 42.00 37.50 42.00
Contribution margin $28.00
$12.50
$18.00

Contribution margin ratio 40 %
25 %
30 %


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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 $4 per pound with a maximum of 4,800 pounds available each month.


Required:

(a) Compute contribution margin per pound of materials used. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)


Contribution
margin
Product A $
Product B $
Product C $

Explanation / Answer

Ok so the question tells us "the same material is used in each product" and it costs $4 per pound. Therefore, we can infer the pounds used in each product by using the given direct material amounts.

Each pound costs $4. Therefore we can divide the direct materials used by the cost per pound and find the number of pounds used.

Product A: 21/4 = 5.25 pounds
Product B: 15/4 = 3.75 pounds
Product C: 4.2/4 = 1.05 pounds

Now that we have the number of pounds used in each product, we can take our given contribution margins for each product, and then divide those contribution margins by the number of pounds in each product to find the contribution margin per pound.

Product A: 28.00/5.25 = $5.33
Product B: 12.50/3.75 = $3.33
Product C: 18.00/1.05 = $17.14 <-- this product offers the highest CM per pound of material.

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