Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow:ProductA B CSelling price ..................................................... $180 $270 $240Variable expenses:Direct materials ............................................ 24 72 32Other variable expenses .............................. 102 90 148Total variable expenses ................................... 126 162 180Contribution margin .......................................... $ 54 $108 $ 60Contribution margin ratio .................................. 30% 40% 25%The same raw material is used in all three products. Barlow Company has only 5,000 pounds ofraw material on hand and will not be able to obtain any more of it for several weeks due to a strike in itssupplier’s plant. Management is trying to decide which product(s) to concentrate on next week in filling itsbacklog of orders. The material costs $8 per pound.Required:1. Compute the amount of contribution margin that will be obtained per pound of material used in eachproduct.2. Which orders would you recommend that the company work on next week—the orders for product A,product B, or product C? Show computations.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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 ..................................................... $180 $270 $240
Variable expenses:
Direct materials ............................................ 24 72 32
Other variable expenses .............................. 102 90 148
Total variable expenses ................................... 126 162 180
Contribution margin .......................................... $ 54 $108 $ 60
Contribution margin ratio .................................. 30% 40% 25%
The same raw material is used in all three products. Barlow Company has only 5,000 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. Compute the amount of contribution margin that will be obtained per pound of material used in each
product.
2. Which orders would you recommend that the company work on next week—the orders for product A,
product B, or product C? Show computations.
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