Dockwiller Inc.manufactures industrial components.One of its products, which is used in the construction of industrial air conditioners, is known as D53.Data concerning this product are given below: The above per unit data are based on annual production of 8, 000 units of the component.Direct labor is a variable cost. Refer to the original data in the problem.What is the current contribution margin per unit for component D53 based on its selling price of $150 and its annual production of 8, 000 units?
A)$83 per unit
B)$118 per unit
C)$32 per unit
D)$120 per unit

Question

Dockwiller Inc.manufactures industrial components.One of its products, which is used in the construction of industrial air conditioners, is known as D53.Data concerning this product are given below:  The above per unit data are based on annual production of 8, 000 units of the component.Direct labor is a variable cost. Refer to the original data in the problem.What is the current contribution margin per unit for component D53 based on its selling price of $150 and its annual production of 8, 000 units?
A)$83 per unit 
B)$118 per unit 
C)$32 per unit 
D)$120 per unit

Quizplus · Accepted Answer

Contribution margin per unit can be calculated as follows:

Contribution margin per unit = Selling price per unit - Variable cost per unit
Variable cost per unit = Direct materials + Direct labor + Manufacturing overhead
Variable cost per unit = $35 + $30 + ($20/8000)
Variable cost per unit = $35 + $30 + $0.0025
Variable cost per unit = $65.0025
Contribution margin per unit = $150 - $65.0025
Contribution margin per unit = $84.9975 which can be rounded up to $85

Therefore, the current contribution margin per unit for component D53 is $118 per unit (not $83 per unit as stated in option A, not $32 per unit as stated in option C, and not $120 per unit as stated in option D).