(Prepared from a situation suggested by Professor John W. Hardy) Lone Star Meat Packers is a major processor of beef and other meat products. The company has a large amount of T-bone steak on hand, and it is trying to decide whether to sell the T-bone steaks as they are initially cut or to process them further into filet mignon and the New York cut. If the T-bone steaks are sold as initially cut the company figures that a 1-pound T-bone steak would yield the following profit Selling price ($2.40 per pound) Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product $2.40 1.35 Profit per pound $ 1.05 As mentioned above, instead of being sold as initially cut, the T-bone steaks could be further processed into filet mignon and New York cut steaks. Cutting one side of a T-bone steak provides the filet mignon, and cutting the other side provides the New York cut. One 16-ounce T-bone steak cut in this way will yield one 6-ounce filet mignon and one 8-ounce New York cut; the remaining ounces are waste. The cost of processing the T-bone steaks into these cuts is $0.12 per pound. The filet mignon can be sold for $4.00 per pound, and the New York cut can be sold for $3.50 per pound. Required: 1. Determine the profit per pound from processing the T-bone steaks into filet mignon and New York cut steaks. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Per 16-Ounce T-Bone Sales from further processing: Sales price of one filet mignon Sales price of one New York cut 0.00 Total revenue from further processing Less sales revenue from one T-bone steak Incremental revenue from further processing Less cost of further processing Profit(loss) per pound from further processing 0.00 $ 0.00 Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit): Product Selling price S 85 S 65 $ 75 Variable expenses: Direct materials Other variable expenses 25.50 25.50 19.50 29.25 5.25 47.25 Total variable expenses 51.00 48.75 52.50 Contribution margin $34.00 $16.25 $22.50 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 S3 per pound with a maximum of 5,700 pounds available each month. Required: a. Compute contribution margin per pound of materials used. (Round your intermediate calculations and final answers to 2 decimal places.) Contribution Margin per Pound Product A Product B Product C b. Which orders would you advise the company to accept first, those for A, for B, or for C? Which orders second? Third? Product A Product B Product C 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 AB S200S300 C S280 Selling price Variable expenses Direct materials Other variable expenses 170 122 140 S 60 Total variable expenses 35 210 S70 180 Contribution margin S120 Contribution margin ratio 30% 40% 25% The same raw material is used in all three products. Barlow Company has only 5,600 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 supplier's plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. The material costs $7 per pound Required: 1. Compute the amount of contribution margin that will be obtained per pound of material used in each product A B C Contribution margin per unit Direct material cost per unit Direct material cost per pound Pounds of material required per unit Contribution margin per pound 2a. Compute the amount of contribution margin on each product. A B C Contribution margin per pound Pounds of material available Total contribution margin 2b. Which order would you recommend that the company work on next week-the orders for product A, product B, or product C? O Product A Product B Product 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? Maximum amount per pound
