The same raw materials is used in all 3 products and AB Company only has 5000 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 products to concentrate on next week in filling its backlog of orders. The material costs $4 per kilogram.

1. Compute the amount of Contribution Margin that will be obtained per kilogram of material used in each product.

2. Which orders whould you recommend that the company work on next week the orders of product A, product B or product C? Show Computations

4 . B B 132 121 Selling Price 92 3 4 5 6 7 8 9 10 11 12 13 Less: Variable Expenses Direct Materials Other Variable Expenses Total Variable Expenses Contribution Margin Contribution Margin Ratio 13 49 62 30 33% 35 47 82 17 75 92 29 24% 50 38% A B 14 15 16 SOLUTIONS 17 Direct Materials 18 Cost per KG 19 KG required per unit 20 Contribution Margin per unit 21 CM Margin per KG used 22 23 24 Conclusion 25 26 27