Kent Manufacturing produces a product that sells for $50.00 and has variable costs of $24.00 per unit.Fixed costs are $260,000.Kent can buy a new production machine that will increase fixed costs by $11,400 per year,but will decrease variable costs by $3.50 per unit.Compute the contribution margin per unit if the machine is purchased.

Question

Quizplus · Accepted Answer

The contribution margin per unit is calculated as the selling price per unit minus the variable cost per unit. If the machine is purchased, the new variable cost per unit is $24.00 - $3.50 = $20.50. Therefore, the contribution margin per unit is $50.00 - $20.50 = $29.50.

Kent Manufacturing Produces a Product That Sells for $50