value: 4.00 points Barlow Company manufactures three products: A, B, and C. The

ID: 2521742 • Letter: V

Question

value: 4.00 points 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 Selling price $240 $360 $320 Variable expenses Direct materials 21 63 Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 147 168 72 153 216 $144 212 240 $ 80 30% 40% 25% The same raw material is used in all three products. Barlow Company has only 6,000 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 $7 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 2a. Compute the amount of contribution margin on each product. Contribution margin per pound Pounds of material available Total contribution margin

Explanation / Answer

Solution:

Part 1 – calculation of Contribution Margin per pound

1) Contribution Margin Per Pound

Contribution Margin per unit (given) (P)

$72

$144

$80

Direct material cost per unit (A)

$21

$63

$28

Direct material cost per pound (B)

Pounds of material required per unit (R = A / B)

Contribution Margin per pound (P/R)

$24

$16

$20

Part 2a – Amount of contribution margin on each product

Contribution Margin per pound

$24

$16

$20

Pounds of material available

6000

Total contribution margin

$144,000

$96,000

$120,000

Part 2b – Product A would be recommended that the company work on next week, since product a has highest contribution margin for the company.

Maximum amount that the company can pay is the contribution margin per pound for product A since it provides highest contribution margin per pound i.e. $24 per pound

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