Question

Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit):

	Product
	A				B				C
Selling price	$	100			$	80			$	90
Variable expenses:
Direct materials		30.00				24.00				6.30
Other variable expenses		30.00				36.00				56.70
Total variable expenses		60.00				60.00				63.00
Contribution margin	$	40.00			$	20.00			$	27.00
Contribution margin ratio		40	%			25	%			30	%

Demand for the company’s products is very strong, with far more orders each month than the company can produce with the available raw materials. The same material is used in each product. The material costs $8 per pound with a maximum of 4,500 pounds available each month.

Required:

1. Compute contribution margin per pound of materials used. (Round your intermediate calculations and final answers to 2 decimal places.)

2. Which orders would you advise the company to accept first, those for A, for B, or for C? Which orders second? Third?

Please show your work

Answer 1

1
	Product	A		B		C
	Direct materials (1)	$30		$24		$6
	Contribution margin (2)	$40		$20		$27
	Contribution margin per pound of materials used (1)/(2)	$0.75		$1.20		$0.23
2	Product A - Second
	Product B - First
	Product C - Third