Question

# Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and contribution...

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 \$ 210 \$ 330 \$ 320 Variable expenses: Direct materials 21 63 28 Other variable expenses 147 168 244 Total variable expenses 168 231 272 Contribution margin \$ 42 \$ 99 \$ 48 Contribution margin ratio 20 % 30 % 15 %

The same raw material is used in all three products. Barlow Company has only 5,200 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 \$7 per pound.

Required:

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

 A B C Contribution margin per unit Direct material cost per unit Direct material cost per pound Pounds of material required per unit Contribution margin per pound

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

 A B C Contribution Margin per pound _______ _______ ______ Pounds of material available Total Contribution Margin

2b. Which orders 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?

 Maximum amount per pound

 1 A B C Contribution margin per unit 42 99 48 Direct material cost per unit 21 63 28 Direct material cost per pound 7 7 7 Pounds of material required per unit 3 9 4 Contribution margin per pound 14 11 12 2a A B C Contribution Margin per pound 14 11 12 Pounds of material available 5200 5200 5200 Total Contribution Margin 72800 57200 62400 2b Product A 3 Maximum amount = 7+14 = \$21 per pound

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