Barlow Company manufactures three products-A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow: Product A B $ 270 $ 240 Selling price Variable expenses: $160 Direct materials Other variable expenses Total variable expenses 16 80 32 108 90 148 124 170 180 Contribution margin $ 36 $ 100 $ 60 Contribution margin ratio 23% 378 25% The same raw material is used in all three products. Barlow Company has only 6,000 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 $8 per pound. Required: 1. Calculate the contribution margin per pound of the constraining resource for each product. 2. Assuming that Barlow has unlimited demand for each of its three products, what is the maximum contribution margin the company can earn when using the 6,000 pounds of raw material on hand? 3. Assuming that Barlow's estimated customer demand is 500 units per product line, what is the maximum contribution margin the company can earn when using the 6,000 pounds of raw material on hand? 4. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. Assuming Barlow's estimated customer demand is 500 units per product line and that the company has used its 6,000 pounds of raw material in an optimal fashion, what is the highest price Barlow Company should be willing to pay for an additional pound of materials?
Barlow Company manufactures three products-A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow: Product A B $ 270 $ 240 Selling price Variable expenses: $160 Direct materials Other variable expenses Total variable expenses 16 80 32 108 90 148 124 170 180 Contribution margin $ 36 $ 100 $ 60 Contribution margin ratio 23% 378 25% The same raw material is used in all three products. Barlow Company has only 6,000 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 $8 per pound. Required: 1. Calculate the contribution margin per pound of the constraining resource for each product. 2. Assuming that Barlow has unlimited demand for each of its three products, what is the maximum contribution margin the company can earn when using the 6,000 pounds of raw material on hand? 3. Assuming that Barlow's estimated customer demand is 500 units per product line, what is the maximum contribution margin the company can earn when using the 6,000 pounds of raw material on hand? 4. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. Assuming Barlow's estimated customer demand is 500 units per product line and that the company has used its 6,000 pounds of raw material in an optimal fashion, what is the highest price Barlow Company should be willing to pay for an additional pound of materials?
Chapter5: Process Costing
Section: Chapter Questions
Problem 1PA: The following product Costs are available for Haworth Company on the production of chairs: direct...
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Concept explainers
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.
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Question
Transcribed Image Text:Barlow Company manufactures three products-A, B, and C. The selling price, variable costs, and contribution margin for one unit of
each product follow:
Product
A
B
C
$ 240
Selling price
Variable expenses:
$160
$ 270
Direct materials
16
80
32
Other variable expenses
108
90
148
Total variable expenses
124
170
180
Contribution margin
$ 36
$ 100
$ 60
Contribution margin ratio
23%
37%
25%
The same raw material is used in all three products. Barlow Company has only 6,000 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 $8 per pound.
Required:
1. Calculate the contribution margin per pound of the constraining resource for each product.
2. Assuming that Barlow has unlimited demand for each of its three products, what is the maximum contribution margin the company
can earn when using the 6,000 pounds of raw material on hand?
3. Assuming that Barlow's estimated customer demand is 500 units per product line, what is the maximum contribution margin the
company can earn when using the 6,000 pounds of raw material on hand?
4. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price.
Assuming Barlow's estimated customer demand is 500 units per product line and that the company has used its 6,000 pounds of raw
material in an optimal fashion, what is the highest price Barlow Company should be willing to pay for an additional pound of materials?
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