Exercise 10-12 Utilization of a Constrained Resource [LO10-5] Benoit Company pro
ID: 2583610 • Letter: E
Question
Exercise 10-12 Utilization of a Constrained Resource [LO10-5]
Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit):
Product
A B C
Selling price $ 80 $ 56 $ 70
Variable expenses:
Direct materials 24 15 9
Other variable expenses 24 27 40
Total variable expenses 48 42 49
Contribution margin $ 32 $ 14 $ 21
Contribution margin ratio 40 % 25 % 30 %
Demand for the company’s products is very strong, with far more orders each month than the company can produce with the available raw materials. The same material is used in each product. The material costs $3 per pound with a maximum of 5,000 pounds available each month.
Required:
1.
Compute contribution margin per pound of materials used. (Round your answers to 2 decimal places.)
2.
Which orders would you advise the company to accept first, those for A, for B, or for C? Which orders second? Third?
Explanation / Answer
1. Contribution margin per pound of material used:
Product A: $4.00
Product B: $2.80
Product C: $7.00
2. The company should first accept orders for product C, then for product A, and lastly for product B.
Workings:
Product A B C Direct materials per unit $ 24 15 9 Material cost per pound $ $ 3.00 $ 3.00 $ 3.00 Direct materials required per unit (pounds) 8 5 3 Contribution margin per unit $ 32 14 21 Direct materials required per unit 8 5 3 Contribution per pound of direct material used $ 4 2.8 7 Ranking based on contribution per pound II III IRelated Questions
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