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

Question

Benoit Company produces three products-A, B, and C. Data concerning the three products follow (per unit) Product Selling price Variable expenses: 80.00 $66.00 $72.00_ Direct materials 24.00 24.00 48.00 16.50 33.0038 0 12.00 Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 8.49.5 $32.00 $16.50 $21.60 50.40 40% 25% 30%. The company estimates that it can sell 700 units of each product per month. The same raw material is used in each product. The material costs $3 per pound with a maximum of 5,400 pounds available each month Required 1. Calculate the contribution margin per pound of the constraining resource for each product. 2. Which orders would you advise the company to accept first, those for A, B, or C? Which orders second? Third? 3. What is the maximum contribution margin that the company can earn per month if it makes optimal use of its 5,400 pounds of materials?

Explanation / Answer

Question - 1

Question - 2

First accept - C

Second accept - A

Third Accept - B

Question - 3

First accepted - C will be produced to maximum demand of 700 units which will take 700 * 4 pounds = 2800 pounds. Now balance available 5400 - 2800 = 2600 will facilitate only part production of Second accepted product - A. Thus 2600 / 8 = 325 Units ............. Thus it is not possible to produce the Product -B

Maximum contribution = 700 * 21.6 + 325 * 32 = 25,520

A B C Contribution Margin 32 16.5 21.6 Materials needed in pounds 8 5.5 4 Contribution Margin per Pound 4 3 5.4

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