Benoit Company produces three products, A, B, and C. Data concerning the three p
ID: 2469546 • Letter: B
Question
Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit): Product A B C Selling price $ 55 $ 35 $ 45 Variable expenses: Direct materials 16.50 10.50 3.15 Other variable expenses 16.50 15.75 28.35 Total variable expenses 33.00 26.25 31.50 Contribution margin $ 22.00 $ 8.75 $ 13.50 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 $4 per pound with a maximum of 4,400 pounds available each month. Required: a. Compute contribution margin per pound of materials used. (Round your intermediate calculations and final answers to 2 decimal places.) b. Which orders would you advise the company to accept first, those for A, for B, or for C? Which orders second? Third?
Explanation / Answer
Solution:
(a)
Calculation of Contribution Margin Per Pound of Material Used
Product A
Product B
Product C
Contribution Margin Per Unit (Note 1)
$22.00
$8.75
$13.50
Raw Material Needs in Pound per Unit (Note 2)
4.125
2.625
0.7875
Contribution Margin Per Pound of Material Used
$5.33
$3.33
$17.14
Note 1: Calculation of Contribution Margin Per Unit
Product A
Product B
Product C
Selling Price Per Unit
$55
$35
$45
Variable Expenses Per Unit:
Direct Material
$16.50
$10.50
$3.15
Other variable expenses
$16.50
$15.75
$28.35
Total Variable Expenses Per Unit
$33.00
$26.25
$31.50
Contribution Margin Per Unit (Selling Price - Total Variable Cost)
$22.00
$8.75
$13.50
Note 2: Calculation of Raw Material Requirement Per Unit
Product A
Product B
Product C
Cost of Direct Material Per Unit
$16.50
$10.50
$3.15
Per Pound Material Cost
$4
$4
$4
Raw Material Needs in Pound
4.125
2.625
0.7875
(b)
PRODUCT C
Since the Contribution Margin Per Pound of Material Used is maximum under Product C. Therefore it is advised to company to accept order of Product C first.
Calculation of Contribution Margin Per Pound of Material Used
Product A
Product B
Product C
Contribution Margin Per Unit (Note 1)
$22.00
$8.75
$13.50
Raw Material Needs in Pound per Unit (Note 2)
4.125
2.625
0.7875
Contribution Margin Per Pound of Material Used
$5.33
$3.33
$17.14
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.