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Category > Accounting Posted 18 Dec 2017 My Price 10.00

selling price, variable costs, and contribution margin

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 $ 180     $

270

     $ 240  
 
  Variable expenses:                      
    Direct materials   24       72       32  
    Other variable expenses   102       90       148  
 
  Total variable expenses   126       162       180  
 
  Contribution margin $ 54     $ 108     $ 60  
 
  Contribution margin ratio   30 %     40 %     25 %
 

  

The same raw material is used in all three products. Barlow Company has only 5,000 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.

Compute the amount of contribution margin that will be obtained per pound of material used in each product.
   

       

2a. Compute the amount of contribution margin on each product.
   

       
 

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? 

 

Answers

CourseLover
(12)
Status NEW Posted 18 Dec 2017 04:12 PM My Price 10.00

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