Benoit Company produces three products-A, B, and C. Data concerning the three pr
ID: 2577087 • Letter: B
Question
Benoit Company produces three products-A, B, and C. Data concerning the three products follow (per unit) Product Selling price Variable expenses: 80.00 $54.00 $80.00_ Direct materials 24.00 24.00 48,00 18.00 Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 12.00 25.20_ 44.00 45:29 56.00 $32.00 10.80 24.00 4 40% 20% 30% The company estimates that it can sell 850 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 7,000 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 7,000 pounds of materials?Explanation / Answer
Answer
Working
A
B
C
A
Direct material per unit $
24
18
12
B
Direct material cost per pound $
3
3
3
C=A/B
Direct material (in pounds) required for 1 unit
8
6
4
Working
A
B
C
A
Contribution margin $
32
10.8
24
B
Direct material per unit (in pounds)
8
6
4
C=A/B
Contribution margin per pound ($)
4
1.8
6
The order or ranking will be based on the ‘contribution margin per pound’ of raw material. The product with the maximum contribution margin per pound will be first and so on.
A
B
C
Contribution margin per pound ($)
4
1.8
6
Ranking to accept
2nd
3rd
1st
Firstly ‘C’ will be produced---
Working
Produce C
A
Units
850
B
Pound required per unit
4
C=A x B
Total pounds required
3400
A
Total pounds available
7000
B
Used in production of 'C'
3400
C=A-B
Remaining pounds of raw material
3600
With remaining pounds of raw material, first ‘A’, then ‘B’ will be produced
A
Remaining pounds
3600
B
Pound required per unit of 'A'
8
C=A/B
Units of 'A’ that can be produced
450
Product Mix will be-------
Working
A
B
C
Total
A
Units produced and sold
450
0
850
1300
B
Pound of raw materials per unit
8
6
4
C= A x B
Total raw material consumed (in pounds)
3600
0
3400
7000
CONTRIBUTION (maximum) will be----
Working
A
B
C
Total
A
Units produced and sold
450
0
850
1300
B
Selling price
80
54
80
C= A x B
Total Sales
36000
0
68000
104000
D = Sales x CM ratio
Contribution margin
[40%] 14400
0
[30%] 20400
34800
Working
A
B
C
A
Direct material per unit $
24
18
12
B
Direct material cost per pound $
3
3
3
C=A/B
Direct material (in pounds) required for 1 unit
8
6
4
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