Question

Childress Company produces three products, K1, S5, and G9. Each product uses the same type of direct material. K1 uses 3.4 pounds of the material, S5 uses 2.2 pounds of the material, and G9 uses 5.1 pounds of the material. Demand for all products is strong, but only 51,300 pounds of material are available. Information about the selling price per unit and variable cost per unit of each product follows.

	K1				S5				G91
Selling price	$	161.46			$	96.36			$	201.14
Variable costs		104.00				77.00				143.00

Calculate the contribution margin per pound for each of the three products. Orders for which product should be produced and filled first, then second, and then third? (Round your answers to 2 decimal places.)

Answer 1

	K1	S5	G91
Selling price per unit	161.46	96.36	201.14
Variable cost per unit	104	77	143
Contribution margin per unit	$57.46	$19.36	$58.14
Material per unit	3.4 pound	2.2 pound	5.1 pound
Contribution margin per pound	57.46/3.4 = $16.9	19.36/2.2 = $8.8	58.14/5.1 = $11.4

Rank 1	K1	$16.9
Rank 2	G91	$11.4
Rank 3	S5	$8.8

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