Question

Barlow Company manufactures three products: A. B, and C. The selling price, variable costs, and contribution margin for one unit of the following product follow:
The same raw material is used in all three products. Barlow Company has only 5,000 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.
(c) 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 pound of materials? Explain.

Answer 1

For this problem, we are required to investigate and compute variable manufacturing overhead variance.

A $54 $24 $8 3 $18 Contribution margin per unit Direct material cost per pound Pounds of fabric required per unit (2) ÷ (3) Contribution margin per pound (1) ÷ (4) B $108 $72 $8 9 $12 C $60 $32 $8 4 $15 2. the corporate should concentrate its available material on product A: Contribution margin per pound (above) Pounds of fabric available.

Total contribution margin A $ 18 × 5,000 $90,000 B $ 12 × 5,000 $60,000 C $ 15 × 5,000 $75,000 Although product A has the bottom contribution margin per unit and also the second lowest contribution margin ratio, it's preferred over the opposite two products because it's the best amount of contribution margin per pound of fabric, and material is that the company’s constrained resource.

The values Barlow Company would be willing to pay per pound for extra raw materials depending on how the materials would be used. If there are unfilled orders for all of the products, Barlow would presumably use the extra raw materials to form more of product A.

Each pound of raw materials employed in product A generates an $18 contribution margin over and above the standard cost of raw materials. Therefore, Barlow Company should be willing to pay $26 per pound ($8 usual price plus $18 contribution margin per pound) for the extra material, but would after all opt to pay far less. The upper limit of $26 per pound to manufacture more products.

A signals to managers how valuable additional raw materials are to the corporate. If all of the orders for product A are filled, Barlow Company would then use additional raw materials to manufacture product C. the corporate should be willing to ante up to $23 per pound ($8 usual price plus $15 contribution margin per pound) for the extra raw materials to manufacture more product C and up to $20 per pound ($8 usual price plus $12 contribution margin per pound) to manufacture more product B if all of the orders for product C are filled similarly.

learn more about Barlow Company: brainly.com/question/14243394

#SPJ4