Exercise 12-12 Volume Trade-Off Decisions [LO12-5] Benoit Company produces three
ID: 2562370 • Letter: E
Question
Exercise 12-12 Volume Trade-Off Decisions [LO12-5]
Benoit Company produces three products—A, B, and C. Data concerning the three products follow (per unit):
Product
80.00
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?
Product
A B C Selling price $80.00
$ 66.00 $ 72.00 Variable expenses: Direct materials 24.00 16.50 12.00 Other variable expenses 24.00 33.00 38.40 Total variable expenses 48.00 49.50 50.40 Contribution margin $ 32.00 $ 16.50 $ 21.60 Contribution margin ratio 40 % 25 % 30 %Explanation / Answer
Product A Product B Product C Selling price per unit 80 66 72 Less: Variable cost per unit Direct material per unit 24 16.5 12 Other expense per unit 24 33 38.4 Contribution per unit 32 16.5 21.6 Material required per unit 8 5.5 4 ($ 3 per pound) (24/3) (16.5/3) (12/3) Req1:Contribution per pound of material 4 3 5.4 (Contribution per unit/ required material per unit) Req 2:Ranking in order of preference for acceptance II II I Req3: Total pounds of material available 5400 Less: Used in production of ProductC 2800 (700 units@4 pound) Remaining material left 2600 ( willl be used in production of product A) Therefore, Product A that can be sold ( 2600/8) 325 units Total contribution that company can earn: Product A (325 units @32) 10400 Product C (700 units@21.60) 15120 Total contribution earned 25520
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.