1.Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow:

Product

A B C Selling price $ 240 $

350

$ 300 Variable expenses: Direct materials 32 80 40 Other variable expenses 136 130 185 Total variable expenses 168 210 225 Contribution margin $ 72 $ 140 $ 75 Contribution margin ratio 30 % 40 % 25 %

The same raw material is used in all three products. Barlow Company has only 4,000 pounds of raw material on hand and will not be able to obtain any more of it for several weeks due to a strike in its suppliers plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. The material costs $8 per pound.

Required:

1.

Compute the amount of contribution margin that will be obtained per pound of material used in each product.

2a. Compute the amount of contribution margin on each product.

2b.

Which order would you recommend that the company work on next weekthe orders for product A, product B, or product C?

Product A Product B Product C

3.

A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. If there is unfilled demand for all three products, what is the highest price that Barlow Company should be willing to pay for an additional pound of materials?

2.

Bed & Bath, a retailing company, has two departments, Hardware and Linens. The companys most recent monthly contribution format income statement follows:

Department

Total Hardware Linens Sales $ 4,080,000 $ 3,030,000 $ 1,050,000 Variable expenses 1,222,000 817,000 405,000 Contribution margin 2,858,000 2,213,000 645,000 Fixed expenses 2,210,000 1,340,000 870,000 Net operating income (loss) $ 648,000 $ 873,000 $ (225,000 )

A study indicates that $375,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 19% decrease in the sales of the Hardware Department.

Required:

If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole?