Question

Tanek Industries manufactures and sells three different models of wet-dry shop vacuum cleaners. Although the shop vacs vary in terms of quality and features, all are good sellers. Tanek is currently operating at full capacity with limited machine time. Sales and production information relevant to each model follows.

Economy Standard Deluxe
Selling price $32 $53 $106
Variable costs and expenses $17 $21 $50
Machine hours required 0.5 0.8 1.6

Required:
a. Calculate contribution margin per unit.
b. What is the contribution margin per unit of limited resource for each product?

Answer 1

Answer and Explanation:

The computation is shown below:

a. The contribution margin per unit is

As we know that

Contribution margin per unit = Selling price - variable cost

So

For economy, it is

= $32 - $17

= $15

For standard, it is

= $53 - $21

= $32

For deluxe, it is

= $106 - $50

= $56

b. Now the contribution margin per unit of limited resources is

For economy, it is

= $15 ÷ 0.5

= $30

For standard, it is

= $32 ÷ 0.8

= $40

For deluxe, it is

= $56 ÷ 1.6

= $35