50.1K

Verified Solution

Link Copied!

Benoit Company produces three productsA, 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. (Hint: Use the DM cost in the table and the cost of the material per pound to figure out how many pounds are used by 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? (See hint below.)

Hint for Part 3: Use (1) the maximum demand, (2) your answers to Part 2 (i.e., the order you would produce in), (3) the amount of the material required to meet demand for each product, and (4) the amount of materials available to figure out how many units you would make of each product (we did this in Example 11-5a in the course packet), and then you can easily calculate the total contribution margin from selling that many units of each product.

Answer & Explanation Solved by verified expert

See Answer