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Benoit Company produces three products, A, B, and C
Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit): A $ 110 Product B $ 90 S 100 Selling price Variable expenses: Direct materials Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 33.00 27.00 7.00 33.00 40.50 63.00 66.00 67.50 70.00 $44.00 $22.50 $30.00 40% 25% 30% Demand for the company's products is very strong, with far more orders each month than the company can produce with the available raw materials. The same material is used in each product. The material costs $7 per pound with a maximum of 5,600 pounds available each month. Required: 1. Compute contribution margin per pound of materials used. (Round your intermediate calculations and final answers to 2 decimal places.) Contribution Margin per Pound Product A Product B Product C 2. Which orders would you advise the company to accept first, those for A, for B, or for C? Which orders second? Third? Product A Product B Product c
Expert Solution
Answer
1 contribution margin per pound of materials
= contribution margin per unit / material required to produce one unit
Direct material per pound cost $7
Material required for produce one unit of Product A
= 33 / 7 = 4.71 pounds
Material required for produce one unit of product B
= 27 / 7 = 3.86 pounds
Material required for produce one unit of product C
= 7 / 7 = 1 pound
Product A Contribution margin per pound of material
= 44 / 4.71 = $9.34
Product B contribution margin per pound of material
= 22.5 / 3.86 = $5.83
Product C contribution margin per pound of material
= 30 / 1 = $30
| Contribution margin per pound | |
| Product A | $9.34 |
| Product B | $5.83 |
| Product c |
$30 |
2
| Product A | Second |
| Product B | Third |
| Product C | First |
The Benoit company produce first the product C because it has the highest contribution margin per pound of material $30. Secondly product product A because it has the second highest contribution margin per pound of material $9.34. Last produce Product B because it has the least contribution margin per pound of material is $5.83.
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