Question

Exercise 10-7 Sales mix LO P3 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 G9 Selling price $ 160 $ 112 $ 210 Variable costs 96 85 144 Calculate the contribution margin per pound for each of the three products. Orders for which product should be produced and filled first, then second, and then third?

Answer 1

Answer:

Product                                    K1                      S5               G9

                                                  $                         $                $

Contribution per pound          16                       9          11

Ranking for production           1st                      3rd             2nd

Explanation:

Product                                    K1                      S5               G9

                                                 $                        $                 $

Selling price                          160                       112             210      

Variable cost                         (96)                    (85)             (144)          

Contribution per unit            64                      27        96

Material per unit (pounds)       4                          3                 6

Contribution per pound*         16                       9          11

Ranking for production           1st                         3rd             2nd

*Contribution per pound= contribution per unit/ material per in pounds