Benoit Company produces three products—A, B, and C. Data concerning the three pr

Question

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

Product

90.00

The company estimates that it can sell 750 units of each product per month. The same raw material is used in each product. The material costs $3 per pound with a maximum of 5,400 pounds available each month.

Required:

1. Calculate the contribution margin per pound of the constraining resource for each product.

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

3. What is the maximum contribution margin that the company can earn per month if it makes optimal use of its 5,400 pounds of materials?

Product

A B C Selling price $

90.00

$ 60.00 $ 80.00 Variable expenses: Direct materials 27.00 18.00 9.00 Other variable expenses 27.00 27.00 47.00 Total variable expenses 54.00 45.00 56.00 Contribution margin $ 36.00 $ 15.00 $ 24.00 Contribution margin ratio 40 % 25 % 30 %

Explanation / Answer

1)

2)ranking is done on the basis of highest contribution per constraint resource to lowest

3)

A B c contribution margin 36 15 24 Pound required per unit 27/3=9 18/3=6 9/3=3 contribution per pound 36/9=4 15/6=2.5 24/3 = $ 8

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