Barlow Company manufactures three products: A, B, and C. The selling price, vari
ID: 2458602 • Letter: B
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:
Product
A
B
C
Selling price
$
240
$
360
$
320
Variable expenses:
Direct materials
24
72
32
Other variable expenses
120
108
176
Total variable expenses
144
180
208
Contribution margin
$
96
$
180
$
112
Contribution margin ratio
40
%
50
%
35
%
The same raw material is used in all three products. Barlow Company has only 4,400 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.
2a.
Compute the amount of contribution margin on each product.
2b.
Which order would you recommend that the company work on next week—the orders for product A, product B, or product C?
Product A
Product B
Product C
3.
A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. If there is unfilled demand for all three products, what is the highest price that Barlow Company should be willing to pay for an additional pound of materials?
Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow:
Explanation / Answer
Required1: The amount of contribution margin that will be obtained per pound of material used in each product:
Required 2a: The amount of contribution margin on each product, if only one product is produced:
Required 2b: Order in which you would recommend that the company work on next week, on the basis of Contribution per pound of Raw-Material —
Ist - product A IInd - product C IIIrd - product B
Required 3: The highest price that Barlow Company should be willing to pay for an additional pound of materials :
Particulars Product A Product B Product C Raw Material cost per unit 24 72 32 Pound per unit @ $8 per pound 3 9 4 Contribution per unit of product $96 per unit $180 per unit $112 per unit Contribution per pound of Raw Material $32 per pound $20 per pound $28 per poundRelated Questions
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