Question

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 B Seing price $200 $300 $280 Variable expenses Direct materials Other variable expenses 28 70 35 112110175 Total variable expenses 140 $ 60 180 $120 210 $ 70 Contribution margin Contribution margin ratio 30% 40% 25% The same raw materials used in all three products. Barlow Company has only 5.600 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 $7 per pound. Required: 1. Compute the amount of contribution margin that will be obtained per pound of material used in each product. A B C Contribution margin per unit Direct material cost per unit Direct material cost per pound Pounds of material required per unit Contribution margin per pound 2a. Compute the amount of contribution margin on each product. A B C Contribution margin per pound Pounds of material available Total contribution margin 2b. Which order would you recommend that the company work on next week-the orders for product A, product B, or product C? Product A Product B Product C 3. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. If there is unfilled demand for all three products, what is the highest price that Barlow Company should be willing to pay for an additional pound of materials? Maximum amount per pound

Answer 1

1) compute the amount of CONTRIBUTION MARGIN that will be obtained per pound of material used in each product

Particular	product A	product B	product C
CONTRIBUTION MARGIN PER UNIT(selling price×contribution margin ratio	($200×30%) $60	($300×40%) $120	($280×25%) $70
Direct material cost per unit	$28	$70	$35
Direct material cost per pound	$7	$7	$7
Pound of material required per unit[direct material cost per unit/direct material cost per pound]	[$28/$7] $4	[$70/$7] $10	[$35/$7] $5
CONTRIBUTION MARGIN PER pound[CONTRIBUTION MARGIN PER UNIT/pound of material required per unit]	[$60/$4] $15	[$120/$10] $12	[$70/$5] $14

​​​​​​2a) compute the amount of CONTRIBUTION MARGIN on each product

Particular	product A	product B	product c
(a)ParticularON MARGIN PER pound	$15	$12	$14
(b)material available of pounds	5600	5600	5600
Total CONTRIBUTION MARGIN[(a)×(b)]	$84000	$67200	$78400

2b) order i recommend is product A because compare to product B and product c CONTRIBUTION MARGIN of product A is more

Therefore product A is recommended.

3)if there is unfilled demand for all three products, the maximum price that Barlow company should willing to pay for an additional pound of materials will be

Maximum amount= direct material cost per pound+CONTRIBUTION MARGIN PER pound of product A

   = $7+$15

   =$22 per pound

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