Apple Hotmail G Google n Facebook 0 YouTube N Netflix Kickass Barlow Company man

Question

Apple Hotmail G Google n Facebook 0 YouTube N Netflix Kickass Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow Selling price $240 $320 $300 Variable expenses: Direct materials 18 174 72 27 228 Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 152 224 $ 48 $96 45 192 255 20% 30% 15% The same raw material is used in all three products. Barlow Company has only 4,900 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 $9 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 is providing the highest contribution

3) The maximum price that could be offered

= price of the material + lowest contribution forgone per unit

= $9 + $12 = $21 per pound of material.

If the price offered is higher than $21, the company will incur loss in producing B.

A B C a) Contribution margin per unit 48 96 45 b) direct material cost per unit ($) 18 72 27 c) direct material cost per pound ($) 9 9 9 d) pounds of material required per unit (b/c)   2 8 3 e) contribution margin per pound (a/d) ($) 24 12 15

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