Question

Exercise 12-8 Volume Trade-Off Decisions [LO12-5, LO12-6] Barlow Company manufactures th ree products-A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow: Product A В C Selling price Variable expenses: Direct materials Other variable expenses $180 $270 $240 24 80 32 90 148 170 180 102 Total variable expenses 126 $ 54 $100 60 Contribution margin 30% 378 25% Contribution margin ratio The same raw material is used in all three products. Barlow Company has only 6,600 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's plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. The material costs $8 per pound Required: 1. Calculate the contribution margin per pound of the constraining resource for each product 2. Assuming that Barlow has unlimited demand for each of its three products, what is the maximum contribution margin the company can earn when using the 6,600 pounds of raw material on hand? 3. Assuming that Barlow's estimated customer demand is 500 units per product line, what is the maximum contribution margin the company can earn when using the 6,600 pounds of raw material on hand? 4. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. Assuming Barlow's estimated customer demand is 500 units per product line and that the company has used its 6,600 pounds of raw material in an optimal fashion, what is the highest price Barlow Company should be willing to pay for an additional pound of materials? Complete this question by entering your answers in the tabs below. Required 1Required 2 Required 3 Required 4 Calculate the contribution margin per pound of the constraining resource for each product. А в Contribution margin per pound of the constrained resource Required 2 <Required1

Answer 1

1) Contribution margin per pound

	A	B	C
Contribution margin per unit	54	100	60
Pound per unit	3	10	4
Contribution margin per hour	18	10	15

2) Total Contribution margin = 6600*18 = $118800

3) Calculate contribution margin

	Pound	Unit	Contribution margin
Product A	500*3 = 1500	500	1500*18 = 27000
Product C	500*4 = 2000	500	2000*15 = 30000
Product B	3100	310	3100*10 = 31000
Total	6600		88000

Total Contribution margin = $88000

4) Highest price = 8+10 = $18 per pound