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 $180 $270 $240 Variable expenses Direct materials 24 72 32 Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 102 126 $ 54 90 162 $108 148 180 $ 60 30% 40% 2 % The same raw material is used in all three products. Barlow Company has only 5,000 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 $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

Explanation / Answer

1.Computation of contribution margin per pound of material used in each product.

A

Pound of material required per unit

=Direct material cost per unit/ cost per pound

3

Pounds

9

Pounds

4

Pounds

$54/3

$18

$108/9

$12

$60/4

$15

2a) computation of amount contribution margin on each product:

75000

2b) As per above statement highest contribution is coming from product A (90000) compared to products B &C.so company should produce product A.

3.

Barlow company contribution per pound of product A,B,C we're 18,12,15.so without incurring loss to any product company can maximum pay $12 for raw material.

Particulars

A

B C Contribution margin per unit $ 54 $ 108 $ 60 Direct material cost per unit 24 72 32 Direct material cost per pound 8 8 8

Pound of material required per unit

=Direct material cost per unit/ cost per pound

3

Pounds

9

Pounds

4

Pounds

Contribution margin per pound

$54/3

$18

$108/9

$12

$60/4

$15

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