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Compute contribution margin

Shelby Company produces three products: product X, product Y, and product Z. Data concerning the three products follow (per unit):

Product X
Product Y
Product Z

Selling price

$
85

$
65

$
75

Less variable expenses:

Direct materials

25.50

19.50

5.25

Labor and overhead

25.50

29.25

47.25

Total variable expenses

51.00

48.75

52.50

Contribution margin

$
34.00

$
16.25

$
22.50

Contribution margin ratio

40
%

25
%

30
%

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Demand for the company's products is very strong, with far more orders each month than the company can produce with the available raw materials. The same material is used in each product. The material costs $6 per pound, with a maximum of 4,400 pounds available each month.

Required :

(a)
Compute contribution margin per pound of materials used. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Contribution margin

Product X

$

Product Y

$

Product Z

$

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(b)
Which orders would you advise the company to accept first, those for product X, for product Y, or for product Z? Which orders second? Third?

Product X
(Click for List) First Second Third

Product Y
(Click for List) First Second Third

Product Z
(Click for List) First Second Third

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Solution Preview

Exercise 13-11 Utilization of a Constrained Resource [LO5]

Shelby Company produces three products: product X, product Y, and product Z. Data concerning the three products follow (per unit):

Product X Product Y Product Z
Selling price $ 85 $ 65 $ 75
Less variable expenses:
Direct materials 25.50 19.50 5.25
Labor and overhead 25.50 29.25 47.25
Total variable expenses ...

Solution Summary

This provides the steps to calculate the compute contribution margin

$2.19