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Answer 3

Barlow Company manufactures 3 products - A, B, C - from the same raw material. It has limited raw material supply. The document provides contribution margin and raw material usage details for each product. It asks to calculate contribution margin per pound for each product, total contribution margin possible, and recommends which products to prioritize. It also asks the maximum premium Barlow should pay per pound for additional material supply.

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136 views4 pages

Answer 3

Barlow Company manufactures 3 products - A, B, C - from the same raw material. It has limited raw material supply. The document provides contribution margin and raw material usage details for each product. It asks to calculate contribution margin per pound for each product, total contribution margin possible, and recommends which products to prioritize. It also asks the maximum premium Barlow should pay per pound for additional material supply.

Uploaded by

mohitgaba19
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Barlow Company manufactures three products: A, B, and C.

The selling price, variable costs, and contribution m

Selling price
Variable expenses:
Direct materials
Other variable expenses
Total variable expenses
Contribution margin
Contribution margin ratio
The same raw material is used in all three products. Barlow Company has only 5,700 pounds of raw material on
Required:
1. Compute the amount of contribution margin that will be obtained per pound of material used in each product.

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.

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
3. A foreign supplier could furnish Barlow with additional stocks of raw material at a substantial premium over the

2b. Which orders would you recommend that the company work on next week - the orders for
product A, product B, or product C?

The company should work first on Product A, then on Product C and then on Product B.

Answer 3

The company should not pay more than $ 20 per pound that is the contribution margin per
pound of Product B as it will be not profitable to pay more than that and if the material is more
expensive than $ 20 per pound, it will be profitable to eliminate the product.
le costs, and contribution margin for one unit of each product follow:
Product
A B C
210 320 240

16 64 24
110 96 132
126 160 156
84 160 84
40% 50% 35%
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

erial used in each product.


A B C
$ 84 $ 160 $ 84
$ 16 $ 64 $ 24
$ 8 $ 8 $ 8
2 8 3
($ 16 per unit /$ 8 per pound) ($ 64 per unit /$ 8 per pound) ($ 24 per unit /$ 8 per pound)
$ 42 $ 20 $ 28
($ 84 per unit /2 pounds) ($ 160 per unit /8 pounds) ($ 84 per unit /3 pounds)

A B C
$ 42 $ 20 $ 28
2 8 3
84 160 84
rders for product A, product B, or product C?
ubstantial premium over the usual price. If there is unfilled demand for all three products, what is the highest price that Barlo
ue to a strike in its supplier's plant. Management is trying to decide which product(s) to concentrate on next week in filling its

the highest price that Barlow Company should be willing to pay for an additional pound of materials?
on next week in filling its backlog of orders. The materials cost $ 8 per pound.

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