Reference no: EM132510496

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           $180        $270      $240

Variable expenses:

Direct materials             24        80           32

Other variable expenses   102         90         148

Total variable expenses   126         170            180

Contribution margin          $ 54          $100          $ 60

Contribution margin ratio      39*           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 ?lling its backlog of orders. The material costs $8 per pound.

Required:

Question 1. Calculate the contribution margin per pound of the constraining resource for each product.

Question 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?

Question 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?

Question 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?