Question

Kent Manufacturing produces a product that sells for $57.00 and has variable costs of $34.00 per unit. Fixed costs are $253,000. Kent can buy a new production machine that will increase fixed costs by $24,200 per year, but will decrease variable costs by $5.00 per unit. Compute the contribution margin per unit if the machine is purchased.

Answer 1

See below

Step-by-step explanation:

Computation of the contribution margin per unit is shown below;

Contribution margin per unit = Selling price per unit - Variable cost per unit

Where,

Selling price per unit = $57

Variable cost per unit = $34 - $5 = $29

Then,

Contribution margin per unit = $57 - $29

Contribution margin per unit = $28 per unit.

Therefore, the contribution margin per unit if the machine is purchased is $28 per unit