Problem 6
The Patton Company manufactures three different products: nailpolish, glow in the dark contact lenses and pens. The sellingprice, variable costs and contribution margin for each unit ofproduct 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 LeafFrogs(LLFs) and plastic. LLFs, being on the UN list of endangeredspecies, is difficult to find. Pattonâs source is only able toprovide 1,000 grams per quarter at a price of $6 per gram. Theplastic is available in unlimited quantities for $2 per gram. Thethree different products use plastic in the following amounts:
Nail Polish â 4 gm
Contacts - .5 gm
Pens â 3 gm
Compute the contribution margin per gram of LLF in eachproduct.
Which product would you recommend that the company producefirst?
How much would Patton be willing to pay for each additional gramof LLF if they used it to make nail polish?
Problem 6
The Patton Company manufactures three different products: nailpolish, glow in the dark contact lenses and pens. The sellingprice, variable costs and contribution margin for each unit ofproduct 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 LeafFrogs(LLFs) and plastic. LLFs, being on the UN list of endangeredspecies, is difficult to find. Pattonâs source is only able toprovide 1,000 grams per quarter at a price of $6 per gram. Theplastic is available in unlimited quantities for $2 per gram. Thethree different products use plastic in the following amounts:
Nail Polish â 4 gm
Contacts - .5 gm
Pens â 3 gm
Compute the contribution margin per gram of LLF in eachproduct.
Which product would you recommend that the company producefirst?
How much would Patton be willing to pay for each additional gramof LLF if they used it to make nail polish?
