Question

Exercise 12-12 Volume Trade-Off Decisions [LO12-5) Benoit Company produces three products-A. B. and C. Data concerning the three products follow (per unit): A $99.88 Product B $60.00 C $82.ee Selling price Variable expenses: Direct materials Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 27.ee 27.00 54.00 $36.29 40% 18.00 27.00 45.00 $15.99 25% 9.00 47.00 56.00 $24.99 30% 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Calculate the contribution margin per pound of the constraining resource for each product. (Round your answers to 2 decimal places.) Product A Product B Product C Contribution margin per pound of the constraining resource Reed Required 2 >

Answer 1

1.

	Product A	Product B	Product C
Contribution margin per unit	36	15	24
Material per unit	27/3= 9	18/3= 6	9/3 = 3
Contribution margin per pound of material	36/9 = 4	15/6 = 2.5	24/3 = 8

2.

Order to be followed:

Product A	Product B	Product C
2	3	1

3.

Material used in making 750 units of Product C = 750 x 3

= 2,250 pounds

Remaining material = 5,400-2,250

= 3,150 pounds

Output of product A = 3,150/9

= 350 units

Contribution margin from Product A (350 x 36)	12,600
Contribution margin from Product C ( 750 x 8)	6,000
Total contribution margin	$18,600

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