Question

Childress Company produces three products, K1, S5, and G9. Each product uses the same type of direct material. K1 uses 3.9 pounds of the material, S5 uses 3.5 pounds of the material, and G9 uses 6.9 pounds of the material. Demand for all products is strong, but only 42,800 pounds of material are available. Information about the selling price per unit and variable cost per unit of each product follows. к1 S5 G91 Selling price Variable costs $163.69 $112.10 $222.76 97.00 82.00 151.00 Calculate the contribution margin per pound for each of the three products. Orders for which product should be produced and filled first, then second, and then third? (Round your answers to 2 decimal places.) Contribution margin per pound Product K1 Product S5 Product G9 Contribution margin per pound Order in which products should be produced and filled:

Answer 1

Calculation of contribution margin per pound:

A B co Contribution margin per pound Product K1 Product S5 Product G9 3 Sales |=3.9*163.69 =3.5*112.1 |=6.9*222.76 4 Variable cost =3.9*97 =3.5*82 =6.9*151 5 Contribution margin per pound =B3-B4 =C3-C4 =D3-D4 *O2 6 Order in which products should 7 be produced and filled: 2nd 3rd 1st

Results of the above excel sheet are as follows:

1 2 B C D Contribution margin per pound Product K1 Product S5 Product G9 3 Sales 638.391 392.35 1537.044 4 Variable cost 378.3 2871 1041.9 5 Contribution margin per pound 260.09 105.35 495.14 6 Order in which products 7 should be produced and filled: 2nd 3rd 1st

The order of production is based on the contribution margin. Product with a higher contribution margin will be given preference in the order of production, then the second-highest will be given 2nd preference and lastly, third-highest will be given 3rd preference in production.