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

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 $8 per pound with a maximum of 5,700 pounds available each month.

Compute contribution margin per pound of materials used. (Round your intermediate calculations and final answers to 2 decimal places.)

Which orders would you advise the company to accept first, those for A, for B, or for C? Which orders second? Third?

     

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

Explanation / Answer

a.

Note: Whenever there is a limiting factor ( scarce resource) involved, decision has to be taken on the basis of contribution per unit of the limiting factor.

b. Since contribution margin per pound of the scarce material is the highest for Product C, orders for Product C should be accepted first. Once the demand for C is satisfied, next in order should be Product A. Product B with the lowest contribution margin per pound should be the last preference.

Product A Product B Product C Contribution margin ( as given) per unit $ 44 $ 22.50 $ 30 Number of pounds needed per unit (Direct material cost / 8) 4.125lbs 3.375 lbs 0.875 lb Contribution margin per pound $ 10.67 $ 6.52 $ 34.29

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