Question

Help Seved Chapter 12 Exercises 5 Product Selling price Variable expenses $160 $270$230 16 108 80 90 24 152 Direct materiale Other variable expepses Total variable expenses Contribution margin 20 points 40 $100 54 23 378 23 Contribution margin ratio eBook The same row material is used in all three products. Barlow Company has only 6,000 pounds of raw material on hand and will not be concentrate on next week in filling its backlog of orders. The material costs $8 per pound i 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 Hint Required: 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 6,000 pounds of raw material on hand? Ask 3. Assuming that Barlow's estimated customer demand is 500 units per product line, what is the maximum contribution margin the Print company can earn when using the 6,000 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 6,000 pounds of raw Referencesmaterial 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 Required1 Required 2qui3Required 4 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 6,000 pounds of raw material on hand? axi < Prex 5015 Next >

Answer 1

Product	A	B	C
Direct Material Cost per unit	$                16	$                80	$                   24
Divided by: Direct Material Cost per Pound	$                  8	$                  8	$                     8
Direct Material Used per Pound	2	10	3
Contribution margin per unit	$                40	$              100	$                   54
Divided by: Direct Material Used per Pound	2	10	3
Contribution margin per pound of raw material (Answer 1)	$                20	$                10	$                   18
Priority for production (Highest Contribution margin per pound of raw material is First)	1	3	2
If unlimited demand for each product then company will produce only Product A. (Hint: Highest Contribution margin per pound of raw material)
Pounds of material			6,000
Divided by: Direct Material Used per Pound for product A			2
Units of product A produced			3,000
Multiply: Contribution margin per unit for product A			$                   40
Maximum Contribution Margin (Answer 2)			$        120,000
If demand for each product is 500 units then company will produce in order to Priority for production. (Highest Contribution margin per pound of raw material is First)
Pounds of material			6,000
Less: Material used for Product A (500*2)			1,000
Remaining Pounds of Material			5,000
Less: Material used for Product C (500*3)			1,500
Remaining Pounds of Material used for Product B			3,500
Divided by: Direct Material Used per Pound for product B			10
Units of product B produced			350
Product	A	B	C
Contribution margin per unit	$                40	$              100	$                   54
Multiply by: Units Produced at optimum product mix	500	350	500
Contribution margin	$        20,000	$        35,000	$          27,000
Contribution margin from Product A			$          20,000
Contribution margin from Product B			$          35,000
Contribution margin from Product C			$          27,000
Maximum Contribution Margin (Answer 3)			$          82,000
Which Product line is not sold at the full demand capacity. (Market Demand = 500 units but Product B is sold only 350 units under the optimum product mix)			Product B
Contribution margin per pound of raw material for product B			$                   10
Add: Normal Direct material price per pound			$                     8
Highest price per pound of material (Answer 4)			$                   18