Exercise 12-8 Volume Trade-Off Decisions (L012-5, LO12-6] Barlow Company manufac

Question

Exercise 12-8 Volume Trade-Off Decisions (L012-5, LO12-6] Barlow Company manufactures three products-A B. and C. The selling price, variable costs, and contribution for one unit of each product folliow Selling price $ 180 380 248 Direct materials 20 90 3e 120 120 1e Other variable expenses Total variable expenses Contribution margin $48 %90 6e Contribution margin ratio 22% 30% 25% The same raw material is used in and will not be able to obtain any more of it for several weeks due to a strike in its suppliers plant. Management is brying to decide which products) to concentrate on next week in fllng its backlog of orders. The material costs $10 all three products. Barlow Company has only 6.750 pounds of raw material on hand per pound 1 Calculate the contribution margin per pound of the constraining resou 2. Assuming that Barlow has unlimited demand for each of its three products, what is the maximum contribution margin the company can earn when using the 6,750 pounds of raw material on hand? 3. Assuming thet Barlow's estimated customer demand is 500 units per product line, what is the maximum contribution margin the company can earn when using the 6,750 pounds of raw material on hand? 4. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. Assuming Barlow' used its 6.750 pounds of raw material in an optimal fashion, what is the highest price Barlow Company should be willing to pay for an additional pound of materials? s estimated customer demand is 500 units per product line and thot the company has Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Assuming that Barlow's estimated customer demand is 500 units per product line, what is the maximum contribution marg the company can earn when using the 6,750 pounds of raw material on hand? Reference links

Explanation / Answer

question no 3

rawmaterials available = 6750 pounds

First we produce 500 units of product A contribution= 500*40 = $20000

we have 6750-1000 ,5750 pounds available to produce product C and product B

the produce 500 units of product C = 500*60 =$30000

then remaining raw material available to produce product b is 5750-(500*3) =4250

with 4250 pounds we can produce 4250/9= 472 units only

Contribution from 470 units =472*90 =$42480

Maximum contribution = 20000 + 30000 + 42480 = $92480

Question no 1 Product A Product B Product C Direct material cost (A) $20 $90 $30 Direct material required per product(B) 2 9 3 (A divided by $10 per unit) Contribution margin ( C) 40 90 60 Contribution margin (C/B) 20 10 20 per unit of rawmaterial Rank 2 1 2 Question no 2 From the above table we observed that Product A And Product B gives same contribution per unit I.e $20 per unit of rawmaterial which is $10 higher than contribution margin from Product B ie $10 So it is better to produce either A or product C No of units of product A by using 6750 pounds of rawmaterials = 6750/2 =3375 units maximumcontribution margin = 3375*40 = $135000 or No of units of product C by using 6750 pounds of rawmaterials = 6750/3 =2250 units Maximum contribution margin = 2250*60 =$135000

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