Benoit Company produces three products-A, B, and C. Data concerning the three products follow (per unit): Product B $ 52.00 Selling price Variable expenses: Direct materials Other variable expenses Total variable expenses Contribution margin. Contribution margin ratio $90.00 27.00 27.00 54.00 $36.00 15.00 24.00 39.00 $ 13.00 25% C $ 80.00 12.00 40.00 52.00 $28.00 35% 40% 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 5,000 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? Which orders second? Third? 3. What is the maximum contribution margin that the company can earn per month if it makes optimal use of its 5,000 pounds of materials?
Benoit Company produces three products-A, B, and C. Data concerning the three products follow (per unit): Product B $ 52.00 Selling price Variable expenses: Direct materials Other variable expenses Total variable expenses Contribution margin. Contribution margin ratio $90.00 27.00 27.00 54.00 $36.00 15.00 24.00 39.00 $ 13.00 25% C $ 80.00 12.00 40.00 52.00 $28.00 35% 40% 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 5,000 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? Which orders second? Third? 3. What is the maximum contribution margin that the company can earn per month if it makes optimal use of its 5,000 pounds of materials?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**Benoit Company Product Analysis**
Benoit Company produces three products—A, B, and C. Here is the data related to the three products:
| Product | A | B | C |
|---------|------|------|------|
| **Selling Price** | $90.00 | $52.00 | $80.00 |
| **Variable Expenses:** | | | |
| Direct Materials | $27.00 | $15.00 | $12.00 |
| Other Variable Expenses | $36.00 | $39.00 | $52.00 |
| **Total Variable Expenses**| $54.00 | $39.00 | $52.00 |
| **Contribution Margin** | $36.00 | $13.00 | $28.00 |
| **Contribution Margin Ratio** | 40% | 25% | 35% |
The company estimates that it can sell 800 units of each product per month. The same raw material is used for each product, costing $3 per pound, with a maximum of 5,000 pounds available each month.
**Required:**
1. Calculate the contribution margin per pound of the constraining resource for each product.
2. Determine the priority for orders based on contribution margin per pound for products A, B, and C.
3. Calculate the maximum contribution margin using the optimal use of the 5,000 pounds of materials.
**Instructions for Calculation:**
- **Contribution Margin per Pound:** Calculate by dividing the contribution margin by the pounds of material required for each product.
**Interactive Question Tabs:**
- **Required 1:** Calculate each product’s contribution margin per pound of the constraining resource.
- **Required 2:** Determine the optimal order priority (highest to lowest) based on contribution margin per pound.
- **Required 3:** Compute the maximum potential contribution margin if the company optimally uses its 5,000 pounds of material. Round answers to two decimal places.
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