Question

Childress Company produces three products, K1, S5, and G9. Each product uses the same type of direct material. K1 uses 4 pounds of the material, S5 uses 3 pounds of the material, and G9 uses 6 pounds of the material. Demand for all products is strong, but only 50,000 pounds of material are available. Information about the selling price per unit and variable cost per unit of each product follows. K1 S5 G91 Selling price $ 160 $ 112 $ 210 Variable costs 96 85 144 1. Calculate the contribution margin per pound for each of the three products.

Answer 1

Answer:

The contribution margin per pound for K1, S5 and G9 is 16 per pound, 9 per pound , and 11 per pound respectively

Explanation:

Contribution margin : The contribution margin shows a difference between selling price and variable cost per pound

Mathematically,

Selling price per pound - Variable cost per pound = Contribution margin

Now, apply this equation for three products

For Product K1 = $160 - 96 = 64

For Product S5 = $112 - 85 = 27

For Product G9 = $210- 144 = 66

Now for computing the contribution margin per pound, divide each product contribution margin with each product pound

Mathematically,

For Product K1 = Contribution margin ÷ Pound

                        = 64 ÷ 4

                        = 16 per pound

For Product S5 =  Contribution margin ÷ Pound

                         = 27 ÷ 3

                         = 9 per pound

For Product G9 = Contribution margin ÷ Pound

                          = 66 ÷ 6

                          = 11 per pound

Thus, the contribution margin per pound for K1, S5 and G9 is 16 per pound, 9 per pound , and 11 per pound respectively.