Question

# Barlow Company manufactures three products—A, B, and C. The 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 \$ 160 \$ 270 \$ 230 Variable expenses: Direct materials 16 80 24 Other variable expenses 108 90 152 Total variable expenses 124 170 176 Contribution margin \$ 36 \$ 100 \$ 54 Contribution margin ratio 23 % 37 % 23 %

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.

3A. 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?

3B. 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?

the answer is as follows

the answer for 3A is = 18,000 + 35,000 + 27,000 = \$ 80,000