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

320

The same raw material is used in all three products. Barlow Company has only 4,800 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.

Compute the amount of contribution margin that will be obtained per pound of material used in each product.

Which orders would you recommend that the company work on next week—the orders for product A, product B, or product C?

A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. If there is unfilled demand for all three products, what is the highest price that Barlow Company should be willing to pay for an additional pound of materials?

Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow:

Explanation / Answer

Product A B C   Selling price 210 320 300   Variable expenses:     Direct materials 16 64 24     Other variable expenses 152 160 231   Total variable expenses 168 224 255   Contribution margin C 42 96 45 No. of pounds required P 2 8 3 (16/8) (64/8) (24/8) Contributin margin per pound C/P 21 12 15 ans 1 ans 2 a A B C Contributin margin per pound A=C/P 21 12 15 total pounds available B 4800 4800 4800 Total contribution amrgin A*B 100800 57600 72000 ans 2b The order should be Product A Product C Product B ans 3 Now there is unfilled demand for all the products so he will require to use the additioanl pounds of raw material to Product A first so so highest that Barlow can pay is the actual price per pound plus the contribution margin per pound for Product A 8+21= $29 is the highest price

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