Refer to Figure 13-4. What is the contribution margin per hour of machine time for a fancy lamp?
A) $21
B) $42
C) $13
D) $8
E) $6

Question

Quizplus · Accepted Answer

Contribution margin per unit of fancy lamp = Selling price - Variable cost = $75 - $40 = $35
Machine time required to produce one fancy lamp = 0.5 hour
Contribution margin per hour of machine time = Contribution margin per unit ÷ Machine time per unit = $35 ÷ 0.5 = $70
Therefore, the contribution margin per hour of machine time for a fancy lamp is $70. This means that producing a fancy lamp contributes $70 towards fixed costs per hour of machine time. Among the given options, the best choice would be to produce fancy lamps as it has the highest contribution margin per hour of machine time.