Buzz Appliances manufactures two products: Food Processors and Espresso Makers. The following data are available: The company can manufacture two food processors per machine hour and three espresso machines per machine hour. The company's production capacity is 1,200 machine hours per month.
What is the contribution margin ratio for food processors?

Question

Buzz Appliances manufactures two products: Food Processors and Espresso Makers. The following data are available:  The company can manufacture two food processors per machine hour and three espresso machines per machine hour. The company's production capacity is 1,200 machine hours per month.
What is the contribution margin ratio for food processors?

Quizplus · Accepted Answer

To calculate the contribution margin per unit for Food Processors, we use the following formula:
Contribution Margin = Selling Price - Variable Costs
Selling Price = $300, Variable Costs = $120 + $80 = $200
Therefore, Contribution Margin per unit = $300 - $200 = $100

To calculate the contribution margin ratio for Food Processors, we use the following formula:
Contribution Margin Ratio = Contribution Margin / Selling Price
Contribution Margin Ratio = $100 / $300 = 0.3333 = 33.33%

Therefore, the contribution margin ratio for Food Processors is 33.33%, which is equivalent to 65.52% (100% - 33.33%) of the variable costs.

Buzz Appliances Manufactures Two Products: Food Processors and Espresso Makers