1. The contribution margin per pound of the constraining resource for each product is:
Product A B C
Contribution margin per pound $15 $9 $14
2. Assuming that Barlow has unlimited demand for each of its three products, the maximum contribution margin it can earn using the 5,400 pounds is $81,000.
3. Assuming that Barlow’s estimated customer demand is 600 units per product line, the maximum contribution margin the company can earn when using the 5,400 pounds is $64,800.
4. The highest price Barlow Company should be willing to pay for an additional pound of materials is $15 ($6 + $9).
<h3>Data and Calculations:</h3>
Available raw materials = 5,400 pounds
Material cost per pound = $6
<h3>Contribution margin per pound </h3>
Product A B C
Selling price $ 150 $ 240 $ 200
Variable expenses:
Direct materials 12 48 18
Other variable expenses 108 120 140
Total variable expenses 120 168 158
Contribution margin $ 30 $ 72 $ 42
Contribution margin ratio 20% 30 % 21 %
Materials per unit 2 8 3 ($18/$6)
Contribution margin per pound $15 $9 $14 ($42/3)
Maximum contribution = $81,000 ($15 x 5,400)
<h3>Total contribution based on maximum demand of 600 units of each product:</h3>
Product A B C
Maximum demand 600 600 600
Materials per unit 2 8 3
Total materials required 1,200 4,800 1,800
Materials allocation 1,200 2,400 1,800
Contribution margin per pound $15 $9 $14
Total contribution $18,000 $21,600 $25,200 = $64,800
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