Check my work Exercise 12-8 Volume Trade-Off Decisions [LO12-5, LO12-6] Barlow C
ID: 2569099 • Letter: C
Question
Check my work Exercise 12-8 Volume Trade-Off Decisions [LO12-5, LO12-6] Barlow Company manufactures three products-A, B, and C. The selling price, varlable costs, and contribution margin for one unit of each product follow Product Selling price Variable expenses $158 $248 288 Direct materials 12 24 Other variable expenses Total variable expenses Contribution margin 168 $ 38 $ 72 24 28% 30% 12% Contribution margin ratio The same raw material is used In all three products. Barlow Company has only 5,400 pounds of raw material on hand and will not be able to obtaln 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 materlal costs $12 per pound. Requlrec 1. Calculate the contribution margin per pound of the constralning 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 5,400 pounds of raw materlal on hand? 3. Assuming that Barlow's estimated customer demand is 600 units per product line, what is the maximum contribution margin the company can earn when using the 5,400 pounds of raw materlal on hand? 4. A forelgn supplier could furnish Barlow with additional stocks of the raw material at a substantlal premlum over the usual price. Assuming Barlow's estimated customer demand is 600 units per product lIne and that the company has used its 5,400 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 materlals? Complete this question by entering your answers in the tabs below. Required 1Required 2Required 3 Required4 Calculate the contribution margin per pound of the constraining resource for each product. n margin per pound of the constrained resource corn Required2 >Explanation / Answer
1. Calculation of Contribution per pound of material
Particulars
A
B
C
Unit Contribution margin(A)
30
72
24
Total Material cost per unit(B)
12
48
24
Material Cost per pound(C)
12
12
12
Material per unit required(B/C)
1pounds
4pounds
2pounds
Contribution margin per pound
30 / 1 = $30 per pound
72 / 4 = $18 per pound
$24/2 = $12 per pound
2. Above table shows that company is able to earn maximum contribution per pound from sale of product A. Therefore, the company should apply all 5,400 pounds of material in the production of product A for maximizing the contribution margin.
Contribution Margin on Product A = 5,400pounds x $30 per pound = $162,000
3. Calculation of units per product that can be produced from 5400 pounds
Since contribution margin per pound is highest of A company should produce all 600 units of A, then with the remaining quantity company should produce B as it is having next highest contribution margin per pound and finally remaining quantity if any should be used for producing product C with least contribution per pound.
Particulars
A
B
C
Maximum unit that can be produced from 5,400 pounds
5,400 / 1 = 5,400 units
5,400 / 4 = 1,350 units
5,400 / 2 =2,700 units
Required Quantity
600
600
600
Material used in producing 600 units
600 X 1 = 600 pounds
600 x 4 =2,400 pounds
600 x 2 =1,200 pounds
Remaining material
(5,400 – 600) = 4,800 pounds
(4,800 – 2,400) = 2,400 pounds
(2,400 – 1,200) = 1,200 pounds
Quantities produced of each type
600 units
600 units
600 units
Contribution margin per product
600units x $30 = $18,000
600units x $72 = $43,200
600units x $24 = $14,400
Maximum Contribution = $75,600
Particulars
A
B
C
Unit Contribution margin(A)
30
72
24
Total Material cost per unit(B)
12
48
24
Material Cost per pound(C)
12
12
12
Material per unit required(B/C)
1pounds
4pounds
2pounds
Contribution margin per pound
30 / 1 = $30 per pound
72 / 4 = $18 per pound
$24/2 = $12 per pound