Benoit Company produces three products, A, B, and C. Data concerning the three p

Question

Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit): 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 $5 per pound with a maximum of 5,200 pounds available each month. a. Compute contribution margin per pound of materials used. 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

a) contribution margin per pound of the material used:

b) The orders would be advised the company to accept :

Product C - first because highest contribution per pound of material

Product A - second because second best contribution per pound of material

Product B - third preferance because lowest contribution per pound of material

A B C Material cost per unit produced 36 30 7.70 cost per pound of material $5 $5 $5 No. of pound of material used ---- A 7.20 6 1.54 Contribution per unit produced ---- B $48 25 33 Contribution margin per pound of the material used -- B/A $6.67 $4.17 $21.43

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