3 Exercise 12-8 Volume Trade-Off Decisions [LO12-5, LO12-6) Barlow Company manuf
ID: 2573258 • Letter: 3
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3 Exercise 12-8 Volume Trade-Off Decisions [LO12-5, LO12-6) Barlow Company manufactures three products-A, B, and C. The selling price, variable costs, and contribution margin for one unit of 03:26:27each product follow: Product $150 240 S 230 Selling price Variable expenses: eBook Direct materials 12 72 36 Othervariable expenses Total variable expenses Contribution margin 12000 -140 192 120 1087 Hint $ 30 48 54 20% 20 23% Contribution margin ratio The same raw material is used in all three products. Barlow Company has only 5,400 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 $12 per pound Required: 1. Calculate the contribution margin per pound of the constraining resource for each product. 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 5,400 pounds of raw material on hand? 3. Assuming that Barlow's estimated customer demand is 600 units per product line, what is the maximum contribution margin the company can earn when using the 5,400 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's estimated customer demand is 600 units per product line and that the company has used its 5,400 pounds of raw material in an optimal fashion, what is the highest price Barlow Company should be wlling to pay for an additional pound of materials? Complete this question by entering your answers in the tabs below Required 1 Required 2 Required 3 Required 4 Calculate the contribution margin per pound of the constraining resource for each product Contribution margin per pound of the constrained resource Required 1 Required 2>Explanation / Answer
1 Products Particulars A B C Products Selling Price 150 240 230 A B C Less: Other VC 108 120 140 Material Cost 12 72 36 Contribution 42 120 90 Material Cost Per Pound 12 12 12 Material Requirement in Pounds 1 6 3 Material Requirement in Pounds 1 6 3 Contribution Per Pound 42 20 30 Ranking I III II 2 Unlimited Demand of All products: We will Use Entire Raw Material in Product A, Giving highest CM per Pound Total Material 5400 Material Requirement in Pounds 1 Units 5400 Sales 810000 Less: Material Cost 64800 Less: OVC 583200 Contribution Margin 162000 3 Products Units Material Requirement PU Total Requirement Material Available is 5400 A 600 1 600 600 First Use B 600 6 3600 500 (5400-600-1800)/6 C 600 3 1800 600 Second Use 6000 Optimul Production: Products Units CM Per Unit Total CM A 600 30 18000 B 500 48 24000 C 600 54 32400 74400 4 Total Requirement for 600 Units Each 6000 (Taken from Above) Less: Material Available 5400 Material Requirement 600 Units of B product with this 100 CM Per Unit of B 48 Total Contribution Margin generated 4800 Material Requirement 600 Per Unit Material CM 8 Usual Material Cost 12 Maximum Payable Price 20
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