éztó.mheducatio Barlow Company manufactures three products: A, B, and C. The sel

Question

éztó.mheducatio 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 C. $220 Selling price $200 $250 Variable expenses: Direct materials Other variable expenses 32 108 80 40 125 Total variable expenses Contribution margin Contribution margin ratio 70 150 60 $100 55 40% 140 165 30% 25% The same raw material is used in all three products. Barlow Company has only 5,300 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 filing 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) Compute the amount of contribution margin per pound of material used in each product A B C 1 Contribution margin per Unit 60 100 55 2 Direct material cost per unit 32 80 40 3 Direct material cost per Pound 8 8 8 4 Pounds of materials required per unit (2)/(3) 4 10 5 5 Contribution margin per pound (1) /(4) 15 10 11 (2a) Computation of amount of contribution margin on each product A B C (a) Contribution Margin per pound 15 10 11 (b) Pounds of materials Available 5300 5300 5300 © Total Contribution margin (a)*(b) 79500 53000 58300 (2b) Which order would you recommend that work on next week recommendation : product A because it contribution is higher then remaining products (3) maximum price willing pay if demand is unfilled for all of three poducts Maximum price wiiling pay per Additional pound = Normal price per Pound + Contrbution per pound of product A   (Highest contribution per pound) Maximum price wiiling pay per Additional pound = $8 +$15 =$23

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