The company estimates that it can sell 800 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 5,400 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

Answer and Explanation:

1. The computation of contribution margin per pound is shown below:-

Product A Product B Product C

Contribution margin per unit $35.20 $11.60 $24.00

Direct materials $26.40 $12.00 $12.00

Material cost $3 $3 $3

Material per unit $8.80 $4.00 $4.00

($26.40 : $3) ($12.00 : $3) ($12.00 : $3)

Contribution margin per pound $4 $2.90 $6

($35.20 : $8.80) ($11.60 : 4.00) ($24.00 : $4.00)

2.

Product A Second

Product B Third

Product C First