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 AB $270 $360 Selling price $340 Variable expenses: Direct materials Other variable expenses - 36 126 72 108 42 179 Total variable expenses Contribution margin 162 $108 180 $ 180 221 $ 119 Contribution margin ratio 40% 50% 35% The same raw material is used in all three products. Barlow Company has only 4,200 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 $6 per pound. Required: 1. Compute the amount of contribution margin that will be obtained per pound of material used in each product. А в с Contribution margin per unit Direct material cost per unit Direct material cost per pound Pounds of material required per unit Contribution margin per pound

Answer 1

1)
	A	B	C
Contribution margin per unit	$108	$180	$119
Direct material cost per unit	$36	$72	$42
Direct material cost per pound	$6	$6	$6
Pounds of material required per unit ($36/$6); ($72/$6); ($42/$6)	6	12	7
Contribution margin per pound ($108/6); ($180/12); ($119/7)	$18	$15	$17
2a)
	A	B	C
Contribution margin per pound	$18	$15	$17
Pounds of materials available	4,200	4,200	4,200
Total contribution margin ($18 * 4,200); ($15 * 4,200); ($17 * 4,200)	$75,600	$63,000	$71,400
2b)
Product A would be recommended to work on next week because the total contribution margin is more for product A.
3)
Maximum amount per pound is $24 ($6 + $18).