Question

Check my work 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 $160 270 240 16 Selling price Variable expenses: Direct materials Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 124 80 90 179 $100 148 180 $60 The same raw material is used in all three products. Barlow Company has only 6,000 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 $8 per pound 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? 3. 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? 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 material in an optimal fashion, what is the highest price Barlow Company should be willing to pay for an additional pound of materials? < Prev 6 of 6 Next

Answer 1

1		A	B	C
	Direct material cost ($)	16	80	32
	Materail cost per unit	8	8	8
	Direct Material used per unit (A)	2	10	4
	Contribution margin (B)	36	100	60
	Contribution per unit of direct material (B/A)	18	10	15
	Rank	1	3	2
2	Company should produce only A.
	No of units of A	6000/2
		3000	units
	Contribution per unit of A	36
	Total contribution	108000
		Units	direct material used	Contribution per unit of finidhed goods	Total contribution
3	Production of A	500	1000	36	18000
			(500*2)
	Production of C	500	2000	60	30000
			(500*4)
	Production of B	300	3000	100	30000
		(3000/10)
					78000
3	Highest price for additional raw material	=per unit contribution for B + current purchase price of material
		=10+8
		18	dollors