Benoit Company produces three products-A, B, and C. Data concerning the three products follow (per unit) : Product A B C Selling price $ 80 $ 56 $ 70 Variable expenses: Direct materials 24 15 9 Other variable expenses 24 27 40 Total variable expenses 48 42 49 Contribution margin $ 32 $ 14 $ 21 Contribution margin ratio 40 % 25 % 30 %

The company estimates that it can sell 700 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 5,700 pounds available each month.

a. Calculate the contribution margin per pound of the constraining resource for each product.

b. Which orders would you advise the company to accept first, those for A, B, or C? Which orders second? Third?

c. What is the maximum contribution margin that the company can earn per month if it makes optimal use of its 5,700 pounds of materials?

Question

Business

Jakob Dillon

25 May, 16:46

Benoit Company produces three products-A, B, and C. Data concerning the three products follow (per unit) : Product A B C Selling price $ 80 $ 56 $ 70 Variable expenses: Direct materials 24 15 9 Other variable expenses 24 27 40 Total variable expenses 48 42 49 Contribution margin $ 32 $ 14 $ 21 Contribution margin ratio 40 % 25 % 30 %

The company estimates that it can sell 700 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 5,700 pounds available each month.

a. Calculate the contribution margin per pound of the constraining resource for each product.

b. Which orders would you advise the company to accept first, those for A, B, or C? Which orders second? Third?

c. What is the maximum contribution margin that the company can earn per month if it makes optimal use of its 5,700 pounds of materials?

+4

Answers (1)

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Lizeth Hoover · Answer 1

1. Calculate the contribution margin per pound of the constraining resource for each product.

A B C

Contribution margin per unit 32.00 14.00 21.00

Pound per unit 24:15:9 8.00 5.00 3.00

Contribution margin per pound 4.00 2.80 7.00

2. Which orders would you advise the company to accept first, those for A, B, or C? Which orders second? Third?

Product Rank

A Second

B Third

C First

3. What is the maximum contribution margin that the company can earn per month if it makes optimal use of its 5,700 pounds of materials?

Total Pounds available 5700 pound s

Product C (700*3) 2100 pounds

Product A (5700-2100) / 8 450 units

Maximum contribution = (700*21+450*32) = 29100