Exhibit 22-1 Lumens Corporation makes ornamental lamps. The costs per lamp are the following:
The manufacturing overhead can be divided into 40% variable manufacturing overhead and 60% fixed manufacturing overhead.
Refer to Exhibit 22-1. To earn a reasonable return and cover administrative and selling expenses, Lumens normally sells its lamps for $200 each. Given this information, Lumens's variable cost of making each lamp is:

Question

Exhibit 22-1 Lumens Corporation makes ornamental lamps. The costs per lamp are the following:
 The manufacturing overhead can be divided into 40% variable manufacturing overhead and 60% fixed manufacturing overhead.
Refer to Exhibit 22-1. To earn a reasonable return and cover administrative and selling expenses, Lumens normally sells its lamps for $200 each. Given this information, Lumens's variable cost of making each lamp is:

Quizplus · Accepted Answer

Variable cost per lamp = direct materials + direct labor + variable manufacturing overhead
= $50 + $40 + ($70 x 40%)
= $50 + $40 + $28
= $118

Since Lumens normally sells its lamps for $200 each, the variable cost of making each lamp is $118, leaving a contribution margin of $82 ($200 - $118) to cover fixed manufacturing overhead, administrative expenses, and provide a reasonable return. Therefore, the correct answer is B.

Exhibit 22-1 Lumens Corporation Makes Ornamental Lamps