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: Product Selling price $210 $320 $300 Variable expenses Direct materials 16 64 24 Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 152 168 $ 42 160 224 $ 96 231 255 $ 45 20% 30% 15% The same raw material is used in all three products. Barlow Company has only 4,800 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 unit Contribution margin per pound

Explanation / Answer

1)

2)

2b) MAnagement should work on Product A as it is giving highest Contribution margin

3) Maximum amount = Existing price + Highest contribution to lost = $ 8 + $ 21 = $ 29 per pound

A B C Contribution Margin per unit 42 96 45 Direct Material Cost per unit 16 64 24 Direct Material Cost per pound 8 8 8 Pound of material required per unit 2 8 3 Contribution Margin per pound 21 12 15

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