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 $270 $360 $340 Variable expenses Direct materials 36 72 42 Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 126 162 $108 108 180 $180 179 221 $119 40% 50% 35% The same raw material is used in all three products. Barlow Company has only 4,200 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 $6 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 Pounds of material required per unit Contribution margin per pound 2a. Compute the amount of contribution margin on each product. Contribution margin per pound Pounds of material available Total contribution margin

Explanation / Answer

1 A B C Contribution margin per unit 108 180 119 Direct material cost per unit 36 72 42 Direct material cost per pound 6 6 6 Pounds of material required per unit 6 12 7 Contribution margin per pound 18 15 17 2 A B C Contribution margin per pound 18 15 17 Pounds of material available 4200 4200 4200 Total contribution margin 75600 63000 71400 2b Product A 3 Maximum amount = 6+18 = $24

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