Question

Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit):

	Product
	A				B				C
Selling price	$	65			$	45			$	55
Variable expenses:
Direct materials		19.50				13.50				3.85
Other variable expenses		19.50				20.25				34.65
Total variable expenses		39.00				33.75				38.50
Contribution margin	$	26.00			$	11.25			$	16.50
Contribution margin ratio		40	%			25	%			30	%

Demand for the company’s products is very strong, with far more orders each month than the company can produce with the available raw materials. The same material is used in each product. The material costs $6 per pound with a maximum of 6,000 pounds available each month.

Required:

1. Compute contribution margin per pound of materials used. (Round your intermediate calculations and final answers to 2 decimal places.)

	Contribution Margin per Pound
Product A
Product B
Product C

2. Which orders would you advise the company to accept first, those for A, for B, or for C? Which orders second? Third?

Product A
Product B
Product C

Answer 1

(1) Contribution Margin per Pound of material used :-

Product	Contribution Margin pu (D)	DM cost pu (A)	DM cost per pound (B)	DM pound used pu (C = A/B)	Contribution Margin per Pound (D/C)
A	26	19.50	6	3.25	8
B	11.25	13.50	6	2.25	5
C	16.50	3.85	6	0.64	25.78

(2) Statement of Order/Ranking :-

Product	Contribution Margin per Pound	Ranking
A	8	2nd
B	5	3rd
C	25.78	1st