- Selling Price Variable Expenses Direct Materials Other Variable Expenses Total Variable Expenses Contribution Margin Co 1 (88.44 KiB) Viewed 36 times
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.
Required:
1a. Calculate the contribution margin per pound of the
constraining resource for each product.
1b. Assuming that Barlow has unlimited demand for each of its
three products, what is the maximum contribution margin the company
can earn when using the 6,000 pounds of raw material on hand?
1c. 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?
1d. 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?
Selling price Variable expenses: Direct materials Other variable expenses Total variable expenses Contribution margin Contribution margin ratio A $ 160 16 108 124 $36 23% Product B $ 270 80 90 170 $ 100 37% C $ 240 32 148 180 $ 60 25%