Exercise 12-12 Volume Trade-Off Decisions [LO12-5] Benoit Company produces three
ID: 2565211 • 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
90.00
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 5,700 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 5,700 pounds of materials?
Product
A B C Selling price $90.00
$ 66.00 $ 80.00 Variable expenses: Direct materials 27.00 18.00 9.00 Other variable expenses 27.00 31.50 47.00 Total variable expenses 54.00 49.50 56.00 Contribution margin $ 36.00 $ 16.50 $ 24.00 Contribution margin ratio 40 % 25 % 30 %Explanation / Answer
1)
2)Product :C
Product A
Product B
products are ranked in order of highest contribution per pound
3)
contribution margin :[400*36]+[0*16.5]+[700*24]
= 14400+0+16800
= $ 31200
A B C Pounds consumed 27/3=9 18/3=6 9/3=3 CONtribution per unit 36 16.5 24 contribution per pound [Ans to 1] 36/9 =$ 4 16.5/6=2.75 24/3=8 ranking 2 3 1Related Questions
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