Question

Material is a scarce resource. The product uses four pounds of material. How much would the company be willing to pay for one more pound of material

Answer 1

The amount that the company is willing to pay is $12.50.

What is CM per pounds?

CM per pounds means the Contribution margin per pounds that we will calculate below.

Particulars                     Amount

Selling price                   $125  

Less: Variable cost

Material                           $40  

Labor                   $22.5  

Variable cost                  $12.5  

CM per unit                     $50  

Divide: Pounds used       $4  

CM per pound          $12.5

In conclusion, the amount that the company is willing to pay is $12.50.

Read more about Contribution margin

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