Barlow Company manufactures three productsA, B, and C. The selling price, variable costs, and contribution...
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Accounting
Barlow Company manufactures three productsA, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow:
Product
A
B
C
Selling price
$
150
$
240
$
200
Variable expenses:
Direct materials
12
48
24
Other variable expenses
108
120
152
Total variable expenses
120
168
176
Contribution margin
$
30
$
72
$
24
Contribution margin ratio
20
%
30
%
12
%
The same raw material is used in all three products. Barlow Company has only 5,400 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 suppliers plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. The material costs $12 per pound.
Required:
3. Assuming that Barlows estimated customer demand is 600 units per product line, what is the maximum contribution margin the company can earn when using the 5,400 pounds of raw material on hand?
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