Benoit Company produces three products—A, B, and C. Data concerning the three products follow (per unit): Product A B C Selling price $ 86.00 $ 66.00 $ 76.00 Variable expenses: Direct materials 25.80 18.00 9.00 Other variable expenses 25.80 31.50 44.20 Total variable expenses 51.60 49.50 53.20 Contribution margin $ 34.40 $ 16.50 $ 22.80 Contribution margin ratio 40% 25% 30%
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.
Benoit Company produces three products—A, B, and C. Data concerning the three products follow (per unit):
| Product | |||
|---|---|---|---|
| A | B | C | |
| Selling price | $ 86.00 | $ 66.00 | $ 76.00 |
| Variable expenses: | |||
| Direct materials | 25.80 | 18.00 | 9.00 |
| Other variable expenses | 25.80 | 31.50 | 44.20 |
| Total variable expenses | 51.60 | 49.50 | 53.20 |
| Contribution margin | $ 34.40 | $ 16.50 | $ 22.80 |
| Contribution margin ratio | 40% | 25% | 30% |
The company estimates that it can sell 950 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?
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