Brittany Furniture manufactures two products: Couches and Beds. The following data are available: The company can manufacture two couches per machine hour and one bed per machine hour. The company's production capacity is 900 machine hours per month.
What is the contribution margin per machine hour for beds?

Question

Brittany Furniture manufactures two products: Couches and Beds. The following data are available:  The company can manufacture two couches per machine hour and one bed per machine hour. The company's production capacity is 900 machine hours per month.
What is the contribution margin per machine hour for beds?

Quizplus · Accepted Answer

To calculate the contribution margin per machine hour for beds, we need to know the contribution margin per unit and the number of units produced per machine hour. 
Let's first calculate the contribution margin per unit for beds:

Selling price of bed = $1,500 
Variable costs of bed = $525 (direct materials of $200, direct labor of $200, and variable overhead of $125) 
Contribution margin per bed = Selling price - Variable costs = $1,500 - $525 = $975

Now, we need to find out how many beds can be produced per machine hour. Since each bed requires one machine hour, the company can produce 900 beds per month.

Therefore, the contribution margin per machine hour for beds is:

Contribution margin per bed x Number of beds produced per machine hour 
= $975 x 1 
= $975

So, the correct answer is A, $975.

As for the best choices, it would depend on the company's goals and constraints. However, a possible strategy could be to produce the product with the highest contribution margin per machine hour to maximize profitability. Based on the given data, beds have a higher contribution margin per machine hour than couches, so the company could focus on producing more beds.

Brittany Furniture Manufactures Two Products: Couches and Beds