Benoit Company produces three products—A, B, and C. Data concerning the three products follow (per unit):     Product A B C Selling price $ 80.00 $ 60.00 $ 72.00 Variable expenses:       Direct materials 24.00 15.00 9.00 Other variable expenses 24.00 33.00 45.00 Total variable expenses 48.00 48.00 54.00 Contribution margin $ 32.00 $ 12.00 $ 18.00 Contribution margin ratio 40% 20% 25%   The company estimates that it can sell 1,000 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 6,000 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 6,000 pounds of materials?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Benoit Company produces three products—A, B, and C. Data concerning the three products follow (per unit):

 

  Product
A B C
Selling price $ 80.00 $ 60.00 $ 72.00
Variable expenses:      
Direct materials 24.00 15.00 9.00
Other variable expenses 24.00 33.00 45.00
Total variable expenses 48.00 48.00 54.00
Contribution margin $ 32.00 $ 12.00 $ 18.00
Contribution margin ratio 40% 20% 25%

 

The company estimates that it can sell 1,000 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 6,000 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 6,000 pounds of materials?

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