Question

Childress Company produces three products, K1, S5, and G9. Each product uses the same type of direct material. K1 uses 4.2 pounds of the material, S5 uses 4.1 pounds of the material, and G9 uses 5.3 pounds of the material. Demand for all products is strong, but only 53,700 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:
Calculate the contribution margin per pound for each of the three products.

Answer 1

Answer and Explanation:

The computation of the contribution margin per pound for each of the three products is shown below:

As we know that

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

For Product K1

= $155.8 - $91

= $64.8

For Product S5

= $108.92 - $90

= $18.92

For Product G9

=$205.55 - $136

= $69.55

Now the contribution margin per pound is

For Product K1 = Contribution margin ÷ Pound

= 64.8 ÷ 4.2

= 15.43 per pound

For Product S5 = Contribution margin ÷ Pound

= 18.92 ÷ 4.1

= 4.61 per pound

For Product G9 = Contribution margin ÷ Pound

= 69.55 ÷ 5.3

= 13.22 per pound