Question

Lie Around Furniture manufactures two​ products: Couches and Beds. The following data are​ available: Couches Beds Sales price $ 500 $ 740 Variable costs $ 350 $ 395 The company can manufacture either 3 couches per machine hour or 1 ​bed(s) per machine hour. The​ company's production capacity is 8 comma 500 machine hours per month. What is the contribution margin per machine hour for​ couches?

Answer 1

$450

Step-by-step explanation:

The contribution margin refers to the specific product's price minus all associated variable costs for that product, which will provide the incremental profit earned for each unit sold. Therefore in this scenario, since each machine hour produces 3 couches we can make the following calculation.

($500 * 3) - ($350 *3) ...... this is the sale price for 1 hour machine hour which creates 3 couches minus the variable cost for those three couches

$1500 - $1050 = $450

Therefore the contribution margin per machine hour for​ couches is $450