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 $280 $400 $360 Variable expenses Direct materials 56 21 Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 154 168 $112 144 200 $200 213 234 $126 40% 50% 35% The same raw material is used in all three products. Barlow Company has only 4,300 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 filling its backlog of orders. The material costs $7 per pound Required: a. 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 b. Compute the amount of contribution margin on each product. Contribution margin per pound Pounds of material available Total contribution margin c. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial If there is unfilled demand for all three products, what is the highest price premium over the usual price. that Barlow Company should be willing to pay for an additional pound of materials? Maximum amount per pound

Explanation / Answer

a)

2)

since product A is yielding highest contribution per pound ,whole of the pound should be used for producing A

c)Maximum price will equal highest contribution per pound =$ 56 per pound

A B C Contribution per unit 112 200 126 Direct material cost per unit 14 56 21 direct material cost per pound 7 7 7 pound of material required per unit 14/7=2 56/7=8 21/7=3 contribution margin per pound 112/2=56 200/8=25 126/3=42 Ranking 1 3 2

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