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 A B C Selling price $ 300 $ 400 $ 300 Variable expenses: Direct materials 36 90 45 Other variable expenses 144 110 150 Total variable expenses 180 200 195 Contribution margin $ 120 $ 200 $ 105 Contribution margin ratio 40 % 50 % 35 % The same raw material is used in all three products. Barlow Company has only 4,500 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 $9 per pound. Required: 1. Compute the amount of contribution margin that will be obtained per pound of material used in each product.

Respuesta :

Answer:

Contribution margin per pound

Product A = $30

Product B = $20

Product C = $21

Explanation:

Products                            A                             B                             C

Direct Material                 $36                         $90                        $45

Provided cost of raw material per pound is $9

Pounds of raw

material used in a unit  $36/9 = 4               $90/9 = 10               $45/9 = 5

Contribution per unit         $120                      $200                       $105

Contribution margin per pound = Contribution per unit/ Pounds per unit

                                 = $120/4 = $30       $200/10 = $20       $105/5 = $21

Highest contribution margin per pound is of Product A = $30

Contribution margin per pound

Product A = $30

Product B = $20

Product C = $21