Question

Zionade Company manufactures a certain type of alloy. The alloy undergoes a hardening process. The hardening unit is operating at full capacity and is a production constraint. The unit contribution margin and the number of hours of hardening treatment used by the alloy are as follows: Unit selling price $97.50 Unit variable cost (22.50) Unit contribution margin $75.00 Hardening treatment hours per unit 3 hrs. Assuming Zionade produces 2,000 units of the alloy, calculate the unit contribution margin per production constraint hour.

Answer 1

Solution:

Step 1: Calculate the total contribution margin of the 2,000 units:

Total contribution margin = Unit contribution margin x Number of Units

Total contribution margin = $75.00 x 2,000

Total contribution margin = $150,000

Step 2: Calculate the total number of hours required for hardening treatment:

Total hours of hardening treatment = Hardening treatment hours per unit x Number of Units

Total hours of hardening treatment = 3 hrs x 2,000

Total hours of hardening treatment = 6,000 hrs

Step 3: Calculate the unit contribution margin per production constraint hour:

Unit contribution margin per production constraint hour = Total contribution margin / Total hours of hardening treatment

Unit contribution margin per production constraint hour = $150,000 / 6,000

Unit contribution margin per production constraint hour = $25.00