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Question No. 13: Calgary Company manufactures three products-X, Y, and Z. The selling price, variable costs, and contribution margin for one unit of each product follow: The same raw material is used in all three products. Calgary Company has only 8,000 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 $10 per pound. Selling price Variable expenses: Direct materials Other variable expenses Total variable expenses Contribution margin Contribution margin ratio X $200 40 120 160 $40 20% Product Y $300 100 110 210 $90 30% Z $250 50 135 185 $65 26% Required: 1. Calculate the contribution margin per poun of the constraining resource for each product. 2. Assuming that Calgary has unlimited demand for each of its three products, what is the maximum contribution margin the company can earn when using the 8,000 pounds of raw material on hand? 3. Assuming that Calgary's estimated customer demand is 500 units per product line, what is the maximum contribution margin the company can earn when using the 8,000 pounds of raw material on hand? 4. A foreign supplier could furnish Calgary with additional stocks of the raw material at a substantial premium over the usual price. Assuming Calgary's estimated customer demand is 500 units per product line and that the company has used its 8,000 pounds of raw material in an optimal fashion, what is the highest price Calgary Company should be willing to pay for an additional pound of materials?

Question No. 13: Calgary Company manufactures three products-X, Y, and Z. The selling price, variable costs, and contribution margin for one unit of each product follow: The same raw material is used in all three products. Calgary Company has only 8,000 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 $10 per pound. Selling price Variable expenses: Direct materials Other variable expenses Total variable expenses Contribution margin Contribution margin ratio X $200 40 120 160 $40 20% Product Y $300 100 110 210 $90 30% Z $250 50 135 185 $65 26% Required: 1. Calculate the contribution margin per poun of the constraining resource for each product. 2. Assuming that Calgary has unlimited demand for each of its three products, what is the maximum contribution margin the company can earn when using the 8,000 pounds of raw material on hand? 3. Assuming that Calgary's estimated customer demand is 500 units per product line, what is the maximum contribution margin the company can earn when using the 8,000 pounds of raw material on hand? 4. A foreign supplier could furnish Calgary with additional stocks of the raw material at a substantial premium over the usual price. Assuming Calgary's estimated customer demand is 500 units per product line and that the company has used its 8,000 pounds of raw material in an optimal fashion, what is the highest price Calgary Company should be willing to pay for an additional pound of materials?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question No. 13: Calgary Company manufactures three products-X, Y, and Z. The selling price, variable costs, and contribution margin for one unit of each product follow: The same raw material is used in all three products. Calgary Company has only 8,000 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 $10 per pound. Selling price Variable expenses: Direct materials Other variable expenses. Total variable expenses Contribution margin Contribution margin ratio X $200 40 160 $40 20% Product Y $300 100 110 210 $90 30% Z $250 50 135 185 $65 26% Required: 1. Calculate the contribution margin per pound of the constraining resource for each product. 2. Assuming that Calgary has unlimited demand for each of its three products, what is the maximum contribution margin the company can earn when using the 8,000 pounds of raw material on hand? 3. Assuming that Calgary's estimated customer demand is 500 units per product line, what is the maximum contribution margin the company can earn when using the 8,000 pounds of raw material on hand? 4. A foreign supplier could furnish Calgary with additional stocks of the raw material at a substantial premium over the usual price. Assuming Calgary's estimated customer demand is 500 units per product line and that the company has used its 8,000 pounds of raw material in an optimal fashion, what is the highest price Calgary Company should be willing to pay for an additional pound of materials?
Transcribed Image Text:Question No. 13: Calgary Company manufactures three products-X, Y, and Z. The selling price, variable costs, and contribution margin for one unit of each product follow: The same raw material is used in all three products. Calgary Company has only 8,000 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 $10 per pound. Selling price Variable expenses: Direct materials Other variable expenses. Total variable expenses Contribution margin Contribution margin ratio X $200 40 160 $40 20% Product Y $300 100 110 210 $90 30% Z $250 50 135 185 $65 26% Required: 1. Calculate the contribution margin per pound of the constraining resource for each product. 2. Assuming that Calgary has unlimited demand for each of its three products, what is the maximum contribution margin the company can earn when using the 8,000 pounds of raw material on hand? 3. Assuming that Calgary's estimated customer demand is 500 units per product line, what is the maximum contribution margin the company can earn when using the 8,000 pounds of raw material on hand? 4. A foreign supplier could furnish Calgary with additional stocks of the raw material at a substantial premium over the usual price. Assuming Calgary's estimated customer demand is 500 units per product line and that the company has used its 8,000 pounds of raw material in an optimal fashion, what is the highest price Calgary Company should be willing to pay for an additional pound of materials?
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