Daisy Bath Products, Inc.(DBP) makes a variety of ceramic sinks and tubs.DBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic.The sinks sell for $200 each and have variable costs of $70.The tubs sell for $700 and have variable costs of $320.The glass and ceramic sinks and tubs require the use of specialized molding equipment.The specialized molding equipment has 5,000 hours of capacity per year.A sink uses an average of 5 hours of specialized molding equipment time; a tub uses an average of 6 hours of specialized molding equipment time.
What is the contribution margin per hour of specialized molding equipment time for sinks?

Question

Daisy Bath Products, Inc.(DBP) makes a variety of ceramic sinks and tubs.DBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic.The sinks sell for $200 each and have variable costs of $70.The tubs sell for $700 and have variable costs of $320.The glass and ceramic sinks and tubs require the use of specialized molding equipment.The specialized molding equipment has 5,000 hours of capacity per year.A sink uses an average of 5 hours of specialized molding equipment time; a tub uses an average of 6 hours of specialized molding equipment time. 
What is the contribution margin per hour of specialized molding equipment time for sinks?

Quizplus · Accepted Answer

Contribution margin (CM) per hour of molding for sinks = (Selling price - Variable cost) / Average time = ($200 - $70) / 5 hours = $26 per hour of constrained resource (molding)