Bartow Company manufactures three products A. B and C The selling price, variabl

Question

Bartow Company manufactures three products A. B and C The selling price, variable costs, and contribution margin for one unit of each product follow The same raw material is used in all three products Barlow Company has only 5,200 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 $7 per pound Required: Compute the amount of contribution margin that will be obtained per pound of material used in each product Compute the amount of contribution margin on each product Which orders 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 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?

Explanation / Answer

Ans 1 A B C Contribution margin per unit   U $42 99 48 Direct Material Cost per unit 21 63 28 Direct Material cost per pound 7 7 7 Pounds of material required per unit T 3 9 4 Contribution margin per pound U/T $14 $11 $12 Ans 2 Contribution margin per pound 14 11 12 Pounds of material available 5200 5200 5200 Total contribution Margin 72800 57200 62400 Ans 2b As contribution per pound and total contribution margin fpr poundsis maximum for Product A, so Product A is the answer Ans 3 The highest price which Barlow can give is $7 plus the contribution which is minimum i.e $11 Maximum Price= $7+$11=$18 He would sacrifice the contribution per pound for the Product B which has least contribution per pound

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