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 $300 $280 Variable expenses Direct materials 28 70 35 Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 112 140 $ 60 110 180 $120 175 210 $ 70 30% 40% 25% The same raw material is used in all three products. Barlow Company has only 5,600 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 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

Explanation / Answer

1.

2a.

2b.

Product A (as it gives the highest contribution margin)

3.

Maximum amount per pound = 15 (highest contribution margin per pound)

A B C Contribution margin per unit 60 120 70 Direct material cost per unit 28 70 35 Direct material cost per pound 7 7 7 Pounds of material required per unit 4 (28/7) 10 (70/7) 5 (35/7) Contribution margin per pound 15 (60/4) 12 (120/10) 14 (70/5)

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