Calculating contribution margin per unit


Q1) MD Widgets produces three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. Given below is per unit data apply:

  Model X Model Y Model Z
Selling price $80 $90 $100
Direct materials $30 30 30
Direct labor ($10 per hour) $15 15 20
Variable support costs ($5 per machine-hour) $5 10 10
Fixed support costs 20 20 20

a) For each model, calculate contribution margin per unit.

b) For each model, calculate contribution margin per machine-hour.

c) If there is excess capacity, which model is most profitable to produce? Describe why?

d) If there is a machine breakdown, which model is the most profitable to produce? Explain why?

e) How can MD encourage her sales people to promote more profitable model?

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Accounting Basics: Calculating contribution margin per unit
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