Baker 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	$	116.00		$	180.00		$	150.00
Less: Variable expenses:
Direct materials		16.00			55.00			22.00
Direct labour		12.60			12.60			12.60
Other variable expenses		54.60			49.00			73.50
Total variable expenses		83.20			116.60			108.10
Contribution margin	$	32.80		$	63.40		$	41.90

The same raw material is used in all three products and costs $4 per kilogram. Baker Company has only 6,000 kilograms of material on hand and will not be able to obtain any more material 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. Direct labour costs $14 per hour.

Required:

1. Compute the amount of contribution margin that will be obtained per kilogram of material used in each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

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

multiple choice 1

Product A

Product B

Product C

3. A foreign supplier could furnish Baker 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 Baker Company should be willing to pay for an additional kilogram of materials? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

4. Assume that direct labour becomes a constraint instead of direct materials. How will your answer to Requirement (2) above change?

multiple choice 2

Product A

Product B

Product C