Chapter 12 Saved Help Sa Exercise 12-8 Volume Trade-Off Decisions [LO12-5, LO12-

Question

Chapter 12 Saved Help Sa Exercise 12-8 Volume Trade-Off Decisions [LO12-5, LO12-6] 10 points Barlow Company manufactures three products-A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow Product Selling price Variable expenses: $180 $300 $260 Direct naterials 20 90 30 120 12000 Other variable expenses Total variable expenses Contribution margin Hint 40 90 60 22% 30% 238 Contribution margin ratio Print The same raw material is used in all three products. Barlow Company has only 6.750 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 productís) to Rederencesconcentrate on next week in filling its backlog of orders. The material costs $10 per pound. 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 6,750 pounds of raw material on hand? 3. Assuming that Barlow's estimated customer demand is 500 units per product line, what is the maximum contribution margin the company can earn when using the 6,750 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 500 units per product line and that the company has used its 6,750 pounds of raw material in an optimal fashion, what is the highest price Barlow Company should be willing to pay for an additional pound of materials? Complete this question by entering your answers in the tabs below Required 1 Required 2 Reauired 3 i Required 4 C Prev

Explanation / Answer

Answer 1. Calculation of Contribution Margin per pound of Direct Material Product A Product B Product C Contribution per Unit                       40                 90                            60 Direct Material Req. Per Unit (in Pounds)                         2                    9                              3 Cont. Per pound of Direct Material                       20                 10                            20 Rank I III II Answer 2. Quantity Unit Contribution Margin Direct Material required per unit Total Direct Material (in Pounds) Balance of Direct Material Total Conbtribution Total Material available (in pounds)                 6,750 Product A                 3,375           40.00                        2.00                    6,750                        -                 135,000 Total Contribution Margin               135,000 Answer 3. Quantity Unit Contribution Margin Direct Material required per unit Total Direct Material (in Pounds) Balance of Direct Material Total Conbtribution Total Material available (in pounds)                 6,750 Product A                    500           40.00                        2.00                    1,000                 5,750                 20,000 Product C                    500           60.00                        3.00                    1,500                 4,250                 30,000 Product B                    472           90.00                        9.00                    4,250                        -                   42,500 Total Contribution Margin                 92,500 Answer 4. Aditional Material Required - Product B - 28 Units X 9 Pounds                    252 Additional Contribution Product B - 28 Units X $90                 2,520 Material Cost - 28 Units X $90                 2,520 Total                 5,040 Highest price per pound of Direct Material                 20.00

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