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 2.2 pounds of the material, and G9 uses 6.5 pounds of the material. Demand for all products is strong, but only 55,400 pounds of material are available. Information about the selling price per unit and variable cost per unit of each product follows. K1 S5 G9 Selling price $155.8 $108.92 $205.55 Variable costs 91.00 90.00 136.00 Required: 1. Calculate the contribution margin per pound for each of the three products. (Round your answers to 2 decimal places.)


Contribution margin per pound

Product K1 Product S5 Product G9

Contribution margin per pound

Order in which products should be produced and filled:

Answer 1

Answer:

Contribution margin per pound

                                        Product K1            Product S5              Product G9

Contribution Margin           41.59%                    17.37%                     33.84%

Contribution per unit of limiting factor (CULF)

                                        Product K1            Product S5              Product G9

Ranking                                   1st                           3rd                         2nd

Explanation:

Contribution margin per pound

                                        Product K1            Product S5              Product G9

Selling Price                      $155.80                  $108.92                  $205.55

Less Variable Costs          ($91.00)                  ($90.00)                ($136.00)

Contribution                       $64.80                     $18.92                  $69.55

Contribution Margin           41.59%                    17.37%                     33.84%

To establish order in which products should be produced, we calculate the contribution per unit of limiting factor then rank from Highest to Lowest !

Contribution per unit of limiting factor (CULF)

                                        Product K1            Product S5              Product G9

Contribution                       $64.80                     $18.92                  $69.55

Materials (Pounds)                 4                              2.2                         6.5

CULF                                   $16.20                     $8.60                     $10.70

Ranking                                   1st                           3rd                         2nd