Barlow Company manufactures three products—A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow:





Product


A B C

Selling price $ 150 $ 240 $ 200

Variable expenses:

Direct materials 12 48 18

Other variable expenses 108 120 140

Total variable expenses 120 168 158

Contribution margin $ 30 $ 72 $ 42

Contribution margin ratio 20 % 30 % 21 %



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 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 $6 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 5,400 pounds of raw material 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 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 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 materials?

Answers

Answer 1

1. The contribution margin per pound of the constraining resource for each product is:

Product                                            A          B           C

Contribution margin per pound $15       $9         $14

2. Assuming that Barlow has unlimited demand for each of its three products, the maximum contribution margin it can earn using the 5,400 pounds is $81,000.

3. Assuming that Barlow’s estimated customer demand is 600 units per product line, the maximum contribution margin the company can earn when using the 5,400 pounds is $64,800.

4. The highest price Barlow Company should be willing to pay for an additional pound of materials is $15 ($6 + $9).

Data and Calculations:

Available raw materials = 5,400 pounds

Material cost per pound = $6

Contribution margin per pound

Product                                            A            B           C

Selling price                                $ 150   $ 240    $ 200

Variable expenses:

Direct materials                               12         48           18

Other variable expenses             108        120         140

Total variable expenses              120        168         158

Contribution margin                   $ 30      $ 72       $ 42

Contribution margin ratio           20%     30 %       21 %

Materials per unit                           2          8            3 ($18/$6)

Contribution margin per pound $15       $9         $14 ($42/3)

Maximum contribution = $81,000 ($15 x 5,400)

Total contribution based on maximum demand of 600 units of each product:

Product                                          A             B           C

Maximum demand                     600         600       600

Materials per unit                           2              8            3

Total materials required         1,200          4,800    1,800

Materials allocation                 1,200         2,400        1,800

Contribution margin per pound $15       $9         $14  

Total contribution                    $18,000   $21,600   $25,200 = $64,800        

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The problem that is most likely to result from a compa-ratio of this size is when the company difficulty keeping costs under control.

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The preparation of a direct labor budget for Gundy Company for the 6-months ending June 30, 2022, is as follows:

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Quarterly Direct Labor Budget

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Production units                    5,000          7,000

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Labor-hour per unit             1.6                1.6

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Total direct labor costs   $120,000   $168,000

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Will has been very meticulous in managing his employees. They have come to believe that he will do exactly what he says he will when he interacts with them. This is the concept of ______.

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Will  has been very meticulous in managing his employees. They have come to believe that he will do exactly what he says he will when he interacts with them. This is the concept of trust.

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This can be found by the formula:
= 1,000 x Cost of ad / Thousands of subscribers

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= 1,000 x 180/ 18,000

= 1,000 x 0.01

= $10

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Treasury bonds rate = 6%

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Question Completion:

Use the following information for this question:

Rating Credit Spread

AAA           0.50%

AA    0.75%

BBB    2.00%

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ent
What can help you meet your budget while shopping for
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Buying the item with the best features.
A
Prioritizing features to meet your needs.

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A list of the items one needs and prioritizing the features one needs will be most helpful in budgeting while shopping for important items.

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Budgeting is a preparation of estimated expenses that one wishes to spend to serve the purpose of the purchase as such. It is essential in comparison of estimates and actual expenses one meets with.

For example, one needs to purchase a laptop for the purpose of video editing, with good processors that support smooth and lag-free video editing.

In such cases, making a list of essential features in a laptop and giving the topmost priorities to the features one needs are to be taken into consideration while budgeting for such purchase.

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