Selling price Variable expenses: Direct materials. Other variable expenses Total variable expenses Contribution margin Contribution margin ratio A B $ 180 $ 270 24 102 126 $ 54 $ 100 30% 37% 80 90 170 C $240 32 148 180. $ 60 25% 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?
Selling price Variable expenses: Direct materials. Other variable expenses Total variable expenses Contribution margin Contribution margin ratio A B $ 180 $ 270 24 102 126 $ 54 $ 100 30% 37% 80 90 170 C $240 32 148 180. $ 60 25% 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Selling price
Variable expenses:
Direct materials
Other variable expenses
Total variable expenses
Contribution margin
Contribution margin ratio
A
$180
24
102
126
$ 54
30%
B
$ 270
80
90
170
$ 100
37%
C
$ 240
32
148
180
$ 60
25%
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?
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