Homework SourseBenoit Company produces three productsA B and C Data concern
Benoit Company produces three products—A, B, and C. Data concerning the three products follow (per unit):
Product
84.00
The company estimates that it can sell 750 units of each product per month. The same raw material is used in each product. The material costs $3 per pound with a maximum of 5,400 pounds available each month.
Required:
1. Calculate the contribution margin per pound of the constraining resource for each product.
2. Which orders would you advise the company to accept first, those for A, B, or C? Which orders second? Third?
3. What is the maximum contribution margin that the company can earn per month if it makes optimal use of its 5,400 pounds of materials?
| Product | |||||||||||
| A | B | C | |||||||||
| Selling price | $ | 84.00 | $ | 70.00 | $ | 74.00 | |||||
| Variable expenses: | |||||||||||
| Direct materials | 25.20 | 21.00 | 9.00 | ||||||||
| Other variable expenses | 25.20 | 31.50 | 42.80 | ||||||||
| Total variable expenses | 50.40 | 52.50 | 51.80 | ||||||||
| Contribution margin | $ | 33.60 | $ | 17.50 | $ | 22.20 | |||||
| Contribution margin ratio | 40 | % | 25 | % | 30 | % | |||||
Solution
1. Calculate the contribution margin per pound of the constraining resource for each product.
2. Which orders would you advise the company to accept first, those for A, B, or C? Which orders second? Third?
3. What is the maximum contribution margin that the company can earn per month if it makes optimal use of its 5,400 pounds of materials?
Maximum contribution = (2250*7.4+375*33.60) = 29250
| A | B | C | |
| Contribution margin per unit | 33.60 | 17.50 | 22.20 |
| Pound per unit | 8.40 | 7.00 | 3.00 |
| Contribution margin per pound | 4.00 | 2.50 | 7.40 |
