Question

Childress Company produces three products, K1, S5, and G9. Each product uses the same type of direct material. K1 uses 4 pounds of the material, S5 uses 3 pounds of the material, and G9 uses 6 pounds of the material. Demand for all products is strong, but only 50,000 pounds of material are available. Information about the selling price per unit and variable cost per unit of each product follows. Orders for which product should be produced and filled first, then second, and then third? Support your answer.

Selling price. \(160 \)112 $210

Variable costs 96 85 144

Short answer

The contribution margin per pound of product K1 is $16.

Step-by-step solution

Definition of variable cost

The variable cost is the cost that changes according to the production level or other activities.

Calculation of the contribution margin

	Product K1	Product S5	Product G9
Selling Price	$160	$112	$210
Less: Variable Cost	$96	$85	$144
Contribution Margin Per Unit	$64	$27	$66

	Product K1	Product S5	Product G9
Contribution Margin Per Unit	$64	$27	$66
Pound Per Unit	$4	$3	$6
Contribution Margin Per Pound	$16	$9	$11
Order in which products should be produced and filled	First	Third	Second