Childress Company produces three products, K1, S5, and G9. Each product uses the

Question

Childress Company produces three products, K1, S5, and G9. Each product uses the same type of direct material. K1 uses 4.1 pounds of the material, S5 uses 3.8 pounds of the material, and G9 uses 5.5 pounds of the material. Demand for all products is strong, but only 48,000 pounds of material are available. Information about the selling price per unit and variable cost per unit of each product follows.

Required:
1. Calculate the contribution margin per pound for each of the three products. (Round your answers to 2 decimal places.)

K1 S5 G91 Selling price $ 152.60 $ 118.16 $ 202.45 Variable costs 87.00 87.00 137.00

Explanation / Answer

Product with highest contribution margin should be produced first and preference is given from highest Contribution margin to lowest.

Products K1 S5 G9 Selling Price /unit 152.6 118.16 202.45 Variable cost/unit 87 87 137 Contribution margin per unit = Selling price - Variable cost 65.6 31.16 65.45 pound per unit 4.1 3.8 5.5 Contribution margin per pound 16 8.2 11.9 Preference order First Third Second

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