Johnstone Company makes two products: Carpet Kleen and Floor Deodorizer. Operating information from the previous year follows. $$\begin{array} { l c c }
& \text { Carpet Kleen } & \text { Floor Deodorizer } \
\text { Units produced and sold } & 5,000 & 4,000 \
\text { Machine hours used } & 5,000 & 2,000 \
\text { Sales price per unit } & \$ 7 & \$ 10 \
\text { Variable cost per unit } & \$ 4 & \$ 8
\end{array}$$ Fixed costs of $20,000 per year are presently allocated equally between both products. If the product mix were to change, total fixed costs would remain the same.
The contribution margin per machine hour for Floor Deodorizer is:
A) $0.25.
B) $2.00.
C) $4.00.
D) $5.00.
E) $20.00.

Question

Johnstone Company makes two products: Carpet Kleen and Floor Deodorizer. Operating information from the previous year follows. $$\begin{array} { l c c } 
& \text { Carpet Kleen } & \text { Floor Deodorizer } \
\text { Units produced and sold } & 5,000 & 4,000 \
\text { Machine hours used } & 5,000 & 2,000 \
\text { Sales price per unit } & \$ 7 & \$ 10 \
\text { Variable cost per unit } & \$ 4 & \$ 8
\end{array}$$ Fixed costs of $20,000 per year are presently allocated equally between both products. If the product mix were to change, total fixed costs would remain the same.
The contribution margin per machine hour for Floor Deodorizer is:
A) $0.25.
B) $2.00.
C) $4.00.
D) $5.00.
E) $20.00.

Quizplus · Accepted Answer

The contribution margin per unit for Floor Deodorizer is $10 - $8 = $2. With 2,000 machine hours used for 4,000 units, each unit uses 0.5 machine hours. Thus, the contribution margin per machine hour is $2 / 0.5 = $4.00.

Johnstone Company Makes Two Products: Carpet Kleen and Floor Deodorizer