Leggero Corporation manufactures two styles of lamps - Bedford Lamp and Lowell Lamp.The following per unit data are available:
$$\begin{array} { | l | r | r | }
\hline & \text { Bedford Lamp } & \text { Lowell Lamp } \
\hline \text { Sales price } & \$ 30 & \$ 50 \
\hline \text { Variable costs } & \$ 20 & \$ 25 \
\hline \text { Machine hours required for one lamp } & 1 & 5 \
\hline
\end{array}$$ Total fixed costs are $42,000,and the machine hour capacity is 30,000 hours per year.The Lowell Lamp has the highest contribution margin per unit and also has the highest contribution margin per machine hour,so the company should focus sales on the Lowell Lamp.

Question

Leggero Corporation manufactures two styles of lamps - Bedford Lamp and Lowell Lamp.The following per unit data are available:
 $$\begin{array} { | l | r | r | } 
\hline & \text { Bedford Lamp } & \text { Lowell Lamp } \
\hline \text { Sales price } & \$ 30 & \$ 50 \
\hline \text { Variable costs } & \$ 20 & \$ 25 \
\hline \text { Machine hours required for one lamp } & 1 & 5 \
\hline
\end{array}$$ Total fixed costs are $42,000,and the machine hour capacity is 30,000 hours per year.The Lowell Lamp has the highest contribution margin per unit and also has the highest contribution margin per machine hour,so the company should focus sales on the Lowell Lamp.

Quizplus · Accepted Answer

The contribution margin per unit for Bedford Lamp is $10 (\$30 - \$20) and for Lowell Lamp is $25 (\$50 - \$25). However, the contribution margin per machine hour for Bedford Lamp is $10 per hour (since it requires 1 hour per lamp) and for Lowell Lamp is $5 per hour (\$25 divided by 5 hours). Therefore, despite the Lowell Lamp having a higher contribution margin per unit, the Bedford Lamp has a higher contribution margin per machine hour, making the initial statement false.

Leggero Corporation Manufactures Two Styles of Lamps - Bedford Lamp