EXERCISE 12-8 Utilization of a Constrained Resource [L012-5, L012-6] Bartow Comp

Question

EXERCISE 12-8 Utilization of a Constrained Resource [L012-5, L012-6] Bartow Company manufactures three products: A, B, and C. The selling price, variable costs, and coniribution margin for one unit of each product follow: Product $270 $240 Variable expenses: Direct materials Other variable expenses 24 102 126 $ 54 72 90 162 $108 . . . 32 148 180 $ 60 . . Total variable expenses . .. 30% 4096 25% 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. Which orders would you recommend that the company work on next week-the orders for product A, product B, or product C? Show computations. A foreign supplier could furnish Barlow with additional stocks of the raw material at a sub- stantial 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? Explain. 2. 3.

Explanation / Answer

Answer:1

Answer:2

The company should accept orders first for product A, second for product C and third for product B. This is computed in part 1.

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 Pounds of material required per unit 3 9 4 Contribution margin per pound 18 12 15

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.