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 $200 $320 $300 Variable expenses Direct materials 18 72 27 Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 122 140 $ 60 120 192 $128 198 225 $ 75 30% 40% 25% The same raw material is used in all three products. Barlow Company has only 4,100 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 $9 per pound

Explanation / Answer

1) Product A Product B Product C Contribution margin per unit (a) 60 128 75 Total Direct material costs per unit (b) 18 72 27 Direct cost per pound (c) 9 9 9 Pound of material required per unit (d=b/c) 2 8 3 Contribution margin per pound(e=a/d) 30 16 25 2-a) Product A Product B Product C Contribution margin per pound 30 16 25 Pounds of material available 4100 4100 4100 Total contribution margin 123000 65600 102500 2-b) Product A (it has the highest contribution margin per pound) 3) Maximum amount = 9+(16/8+25/3) = $19.33

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