QUESTION 1

Utilization of a Constrained Resource

Westburne Company produces three products: Alpha, Omega and Beta. Data (per unit) concerning the three products follow:

Alpha Omega Beta

Selling price $160 $112 $140

Less variable expenses:

Direct materials 48 30 18

Labour and overhead 48 54 80

Total variable expenses 96 84 98

Contribution margin $64 $28 $42

Contribution margin ratio 40% 25% 30%

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 kilogram, with a maximum of 10,000 kilograms available each month.

Required:

Which orders would you advise the company to accept first, those for Alpha, Omega or Beta? Which orders second? Third?