Clay Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp. The following per unit data are available: Total fixed costs are $30,000, and Clay can sell a maximum of 10,000 units of each style of lamp annually. Machine hour capacity is 25,000 hours per year. What is the contribution margin per machine hour for the Lowell lamp?

Question

Clay Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp. The following per unit data are available:  Total fixed costs are $30,000, and Clay can sell a maximum of 10,000 units of each style of lamp annually. Machine hour capacity is 25,000 hours per year. What is the contribution margin per machine hour for the Lowell lamp?

Quizplus · Accepted Answer

To calculate the contribution margin per machine hour for the Lowell lamp, we need to calculate the contribution margin per unit and then divide it by the machine hours required per unit.

Contribution margin per unit of Lowell lamp = Sales price per unit - Variable cost per unit
= $65 - $40
= $25

Machine hours required per unit of Lowell lamp = 2

Contribution margin per machine hour for Lowell lamp = ($25/2) = $12.5/2 = $3 per machine hour

Therefore, the answer is C, $3 per machine hour.

Clay Corporation Manufactures Two Styles of Lamps-A Bedford Lamp and a Lowell