The contribution margin per unit for the small table is $900 - $770 = $130, and the contribution margin per unit for the large table is $1,800 - $800 = $1,000. When you consider the contribution margin per direct labor hour, the small table has a higher contribution margin per hour: $130 / 8 hours = $16.25 per hour, while the large table has $1,000 / 10 hours = $100 per hour. The given statement is True.
Stephen's Hardwood Furniture's small table, priced at $900, has a lower contribution margin per unit ($130) compared to the large table at $1,800 with a margin of $1,000. However, the small table boasts a higher contribution margin per direct labor hour ($16.25) as opposed to the large table's $100 per hour.
Despite the small table having a lower total contribution margin, its efficiency in utilizing direct labor hours makes it more profitable in that aspect. This highlights the importance of evaluating contribution margins not only per unit but also considering resource efficiency to make informed decisions about production and pricing strategies.
The given statement is True.
The complete question is:
Stephens Hardwood Furniture manufactures a small table and a large table. The small table sells for $900, has variable costs of $770 per table, and takes 8 labor hours to manufacture. The large table sells for $1,800, has variable costs of $800, and takes 10 direct labor hours to manufacture. The small table has a lower contribution margin per unit, but a higher contribution margin per direct labor hour.
State True or False.