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 Selling price Variable expenses: Direct materials Other variable expenses Total variable expenses $180 $270 $240 24 80 32 102 90 148 126 170 180 Contribution margin $ 54 $100 $ 60 Contribution margin ratio 30% 378 25% The same raw material is used in all three products. Barlow Company has only 6,000 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. 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 can earn when using the 6,000 pounds of raw material on hand? 3. Assuming that Barlow's estimated customer demand is 500 units per product line, what is the maximum contribution margin the company can earn when using the 6,000 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 500 units per product line and that the company has used its 6,000 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? contribution margin the company
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 Selling price Variable expenses: Direct materials Other variable expenses Total variable expenses $180 $270 $240 24 80 32 102 90 148 126 170 180 Contribution margin $ 54 $100 $ 60 Contribution margin ratio 30% 378 25% The same raw material is used in all three products. Barlow Company has only 6,000 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. 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 can earn when using the 6,000 pounds of raw material on hand? 3. Assuming that Barlow's estimated customer demand is 500 units per product line, what is the maximum contribution margin the company can earn when using the 6,000 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 500 units per product line and that the company has used its 6,000 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? contribution margin the company
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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
B
Selling price
Variable expenses:
Direct materials
Other variable expenses
Total variable expenses
$180
$ 270
$240
24
80
32
102
90
148
126
170
180
Contribution margin
$ 54
$100
$ 60
Contribution margin ratio
30%
37%
25%
The same raw material is used in all three products. Barlow Company has only 6,000 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. 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 6,000 pounds of raw material on hand?
3. Assuming that Barlow's estimated customer demand is 500 units per product line, what is the maximum contribution margin the
company can earn when using the 6,000 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 500 units per product line and that the company has used its 6,000 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?
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Step 1 Theory of constraints and bottleneck resources
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VIEWStep 3 Calculation of contribution Margin with unlimited demand for each product
VIEWStep 4 Calculation of contribution Margin with demand of 500 units per product line
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