5:27 PM ezto.mheducation.com AT&T; LTE Chepter Barlow Company manufactures three

Question

5:27 PM ezto.mheducation.com AT&T; LTE Chepter Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow aling prica The same raw material is used in all three products. Barlow Company has only 5,000 pounds of raw material on hand and will not be able to obtain any more of it for several weeks due to a strike in its supplier's plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. The material costs $8 per pound. 1. Compute the amount of contribution margin that will be obtained per pound of material used in each produet 2a. Compute the amount of contribution margin on each product. that the company 2b. Which orders would you recommend orders for product A, product B, or product C? work on next week-the 3. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. If there is unfilled demand for all three products what is the highest price that Barlow Company should be willing to pay for an additional pound of materials?

Explanation / Answer

1.

2.a

2.b

Company should concentrate it's available material on product A because it has the greatest amount of contribution margin per pound of material, and material is the company constrained resource.

3

For the unfilled demand of product A , company should be willing to pay up to $26 per pound($8 usual price+$18 contribution margin per pound).

If all the orders of product A is filled, then company filled the unfilled demand of product C. Then company should be willing to pay up to $23 per pound($8 usual price+$15 contribution margin per pound).

For the unfilled demand of product B , company should be willing to pay up to $20 per pound($8 usual price+$12 contribution margin per pound).

A B C (1) contribution margin per unit $54 $108 $60 (2) direct material cost per unit $24 $72 $32 (3) direct material cost per pound $8 $8 $8 (4) pounds of material required per unit (2÷3) 3 9 4 (5) contribution margin per pound $18 $12 $15

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