Reference no: EM132747854

Question - 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
Selling price	$137.00	$190.00	$185.00
Less: Variable expenses:
Direct materials	23.00	79.00	58.00
Direct labour	14.80	14.80	14.80
Other variable expenses	67.10	42.00	71.75
Total variable expenses	104.90	135.80	144.55
Contribution margin	$32.10	$54.20	$40.45

The same raw material is used in all three products and costs $4 per kilogram. Barlow Company has only 9,500 kilograms of material on hand and will not be able to obtain any more material 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. Direct labour costs $21 per hour.

Required -

1. Compute the amount of contribution margin that will be obtained per kilogram of material used in each product.

2. Which orders would you recommend that the company work on next week-the orders for product A, product B or product C?

3. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. If there is unfilled demand for all three products, what is the highest price that Barlow Company should be willing to pay for an additional kilogram of materials?

4. Assume that direct labour becomes a constraint instead of direct materials. How will your answer to Requirement (2) above change?