Question

Bates Company plans to add a new item to its line of consumer product offerings. Two possible products are under consideration. Each unit of Product A costs $6 to produce and has a contribution margin of $3, while each unit of Product B costs $12 and has a contribution margin of $4.

What is the differential revenue for this decision?
a.$7
b.$1
c.$6
d.$9

Answer 1

option (a) $7

Step-by-step explanation:

Data provided in the question:

Cost of product A = $6

Contribution margin of product A = $3

Cost of product B = $12

Contribution margin of product B = $4

Now,

Selling price of product A

= Cost of product A + Contribution margin of product A

= $6 + $3

= $9

Selling price of product B

= Cost of product B + Contribution margin of product B

= $12 + $4

= $16

Therefore,

The differential revenue

= Selling price of product B - Selling price of product A

= $16 - $9

= $7

Hence,

the answer is option (a) $7