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): Selling price $ 70 $ 50 $ 60 Variable expenses: Direct materials 21.00 15.00 4.20 Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 21.00 42.00 $28.00 22.50 37.50 $12.50 37.80 42.00 18.00 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 $8 per pound with a maximum of 4,500 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.) Contribution Margin per Pound Product A Product B ProductC b. Which orders woud you advise the company to accept frst, those for A, for B, or for C? Which orders second? Third? Product A Produ

Explanation / Answer

Answer

Working for ‘pound’ per unit calculation and contribution per pound

Working

A

B

C

A

Direct material cost

$               21.00

$                 15.00

$             4.20

B

Material cost per pound

$                  8.00

$                   8.00

$             8.00

C=A/B

Material required (in pounds) – rounded off 2 decimals

2.63

1.88

0.53

D [given]

Contribution margin

$               28.00

$                 12.50

$           18.00

E=D/C

Contribution margin per pound

$               10.65

$                   6.65

$           33.96

Answer

Contribution margin per pound

A

$               10.65

B

$                  6.65

C

$               33.96

Order in which material to be accepted for product.

Contribution margin per pound

Order

A

$               10.65

Second

B

$                  6.65

Third

C

$               33.96

First

Above order (or ranking) is based on ‘contribution per pound’. ‘C’ has the ,maximum contribution per pound, hence first, ‘B’ has the lowest and hence it’s the last.

Working

A

B

C

A

Direct material cost

$               21.00

$                 15.00

$             4.20

B

Material cost per pound

$                  8.00

$                   8.00

$             8.00

C=A/B

Material required (in pounds) – rounded off 2 decimals

2.63

1.88

0.53

D [given]

Contribution margin

$               28.00

$                 12.50

$           18.00

E=D/C

Contribution margin per pound

$               10.65

$                   6.65

$           33.96

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