Vandelay Industries manufactures a range of latex products. Vandelay recently purchased new equipment to manufacture latex gloves for the medical community. The new machinery costs $70,000 and can produce 40,000 pairs of gloves each day. The raw latex material for each pair of gloves costs $.03 and Vandelay sells the gloves at a wholesale price of $.10 a pair. Vandelay's contribution margin for a pair of gloves is:
A) $.07.
B) $.13.
C) $.10.
D) $.40.

Question

Quizplus · Accepted Answer

The contribution margin is calculated as the selling price per unit minus the variable cost per unit. In this case, the selling price per unit is $.10 and the variable cost (cost of raw latex material) per unit is $.03, so the contribution margin per pair of gloves is $.10 - $.03 = $.07.

Vandelay Industries Manufactures a Range of Latex Products