Question

Childress Company produces three products, K1, S5, and G9. Each product uses the same type of direct material. K1 uses 3.1 pounds of the material, S5 uses 2.4 pounds of the material, and G9 uses 6.4 pounds of the material. Demand for all products is strong, but only 54,200 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 $147.39 $112.64 $215.56
Variable costs 95.00 92.00 149.00

Required:
Calculate the contribution margin per pound for each of the three products.

Answer 1

Contribution margin per pound

K1 - $16.90

S5 - $8.60

G9 - $10.40

Step-by-step explanation:

Both sales and variable cost are dependent on the number of units sold.

The sales less the variable cost gives the contribution margin. The contribution margin less the fixed cost gives the net operating income.

The contribution margin per pound for each of the three products is the ratio of the contribution margin per unit of a product to the number of pounds required per unit of that product.

K1 S5 G9

Selling price $147.39 $112.64 $215.56

Variable costs $95.00 $92.00 $149.00

Contribution margin $52.39 $20.64 $66.56

Pounds per unit 3.1 2.4 6.4

Contribution margin/pound $16.90 $8.60 $10.40