Question

Benoit Company produces three products-A, B, and C. Data concerning the three products follow (per unit): Product А $88.00 $72.00 $78.00 Selling price Variable expenses: Direct materials Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 26.40 26.40 52.80 $35.20 40% 18.00 36.00 54.00 $18.00 25% 9.00 45.60 54.60 $23.40 30% The company estimates that it can sell 900 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 6,000 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 6,000 pounds of materials?

Answer 1

B C D 1 1) 2 3 Direct materials cost per unit 4 Materials cost per unit 5 Direct materials per unit Product A Product Product $ 26.4$ 18 $ $ 3 $ 3 $ 3 8.8 6 Product A Product B Product C 8 Contribution margin per unit $ 35.2 $ 18$ 23.4 9 Direct materials per unit 8.8 6 3 10 Contribution margin per pound of the constraining resource 41 3 7.8 11 12 2) 13 First Product C 14 Second Product A 15 Third Product B 16 17 3) 18 19 Product C (Direct materials used = 900*3 = 2,700 pounds) 20 Product A (16,000-2,700)/8.8] 375 Units 900 22 Maximum contribution margin = (375*$35.2) + (900*$23.4) 23 Maximum contribution margin = $13,200 + $21,060 24 Maximum contribution margin = $34,260

1 1) 2 Product A 26.4 Product B Product C 118 9 =+B3/B4 =+C3/04 =+D3/D4 Product A 35.2 =+B5 |=+B8/B9 Product B Product C 23.4 =+C5 =+D5 =+C8/09 - 08/09 3 Direct materials cost per unit 4 Materials cost per unit 5 Direct materials per unit 6 7 8 Contribution margin per unit 9 Direct materials per unit 10 Contribution margin per pound of the constraining resource 11 12 2) 13 First 14 Second 15 Third 16 17 3) 18 19 Product C (Direct materials used = 900*3 = 2,700 pounds) 20 Product A [(6,000-2,700)/8.8] 21 22 Maximum contribution margin = (375*$35.2) + (900*$23.4) 23 Maximum contribution margin = $13,200 + $21,060 24 Maximum contribution margin = $34,260 Product C Product A Product B Units 900 =+(6000-(900*3))/8.8