Vicade has 1,000 commercial video game machines in inventory produced at a cost of $400 each (60% variable and 40% fixed). The machines were to have been sold for $1,000 each. However, the machines currently contain a minor malfunction reducing their selling price to $150 each. The company could correct the malfunction at a variable cost of $250 each and then sell the machines for $550 each.
If the games are reworked, what will be the contribution per unit from doing so?
A) $350
B) $300
C) $150
D) $100

Question

Quizplus · Accepted Answer

- If Vicade sells the machines as is for $150 each, they will lose $250 per unit ($400 cost - $150 selling price).
- If Vicade reworks the machines at a cost of $250 each and then sells them for $550 each, they will have a contribution margin of $300 per unit ($550 selling price - $400 variable cost - $250 rework cost).
- Therefore, the best choice is to rework the machines and sell them for $550 each, resulting in a contribution margin of $300 per unit.

Vicade Has 1,000 Commercial Video Game Machines in Inventory Produced