Question

Elegance Bath Products, Inc. (EBP) makes a variety of ceramic sinks and tubs. EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic. The sinks sell for $150 each and have variable costs of $80. The tubs sell for $600 and have variable costs of $450. The glass and ceramic sinks and tubs require the use of specialized molding equipment. The specialized molding equipment has 4,050 hours of capacity per year. A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time. What is the contribution margin per hour of specialized molding time for tubs

Answer 1

$30 per hour

Step-by-step explanation:

Contribution margin is calculated by subtracting all variable cost of the product by its sales price. The Elegance Bath Products, Inc. (EBP) sells tub for $600 each which has variable cost of $450. To calculate the contribution margin we need to calculate the gross profit for each tub.

The gross profit for tub = $600 - $450 = $150

The tub takes 5 hours of specialized molding equipment.

$150 / 5 specialized molding hours = $30/hour