Question

Benoit Company produces three products-A, B, and C. Data concerning the three products follow (per unit) Product $88.00 72.00 78.00 Selling price Variable expenses: 26.40 26.40 52.80 Direct materials 9.00 45.60 54.60 $35.20 $18.00 $23.40 18.00 36.00 54.00 Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 40% 25% 303 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? Complete this question by entering your answers in the tabs below. Required 1Required 2Required 3 Calculate the contribution margin per pound of the constraining resource for each product. (Round your answers to 2 decimal places.) Product A Product BProduct C Contribution margin per pound of the constraining resource

Answer 1

1. Computation of contribution margin per pound of the constraining resource for each product.
	Product A	Product B	Product C
Contribution margin per unit	35.2	18	23.4
Material per unit	8.8	6	3
Contribution margin per material pound	4.00	3.00	7.80
Material per Unit	(26.40/$3)	(18/3)	(9/3)

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

3. Computation of maximum contribution margin that the company can earn per month if it makes optimal use of its 6,000 pounds of materials
		Total pound available	6000Pound
Product C pound (900*3)	2700 Poud
Balance pound	3300 Pound
Product A (3300/8.80)	375 Unit
Maximum contribution = (900*23.40+375*35.20) = 34260