Problem 6

The Patton Company manufactures three different products: nail polish, glow in the dark contact lenses and pens. The selling price, variable costs and contribution margin for each unit of product is as follows:

		Nail Polish	Contacts	Pens
Selling price		23.50	26.00	25.00
Less variable expenses
	Direct materials	14.00	16.00	16.50
	Other variable expenses	1.50	1.25	0.75
Total variable expenses		15.50	17.25	17.25
Contribution margin		8.00	8.75	7.75

All three products use the same two materials, Lemur Leaf Frogs(LLFs) and plastic. LLFs, being on the UN list of endangered species, is difficult to find. Pattons source is only able to provide 1,000 grams per quarter at a price of $6 per gram. The plastic is available in unlimited quantities for $2 per gram. The three different products use plastic in the following amounts:

Nail Polish 4 gm

Contacts - .5 gm

Pens 3 gm

Compute the contribution margin per gram of LLF in each product.

Which product would you recommend that the company produce first?

How much would Patton be willing to pay for each additional gram of LLF if they used it to make nail polish?