Question

TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,000 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding time, annual production is limited to 5,000 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums:
Management believes 6,000 WVD drums could be sold each year if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has considered buying additional drums from an outside supplier. Harcor Industries, Inc., a supplier of quality products, would be able to provide up to 4,000 WVD-type drums per year at a price of $138 per drum, which TufStuff would resell to its customers at its normal selling price after appropriate relabeling.
Megan Flores, TufStuff's production manager, has suggested that the company could make better use of the welding machine by manufacturing bike frames, which would require only 0.5 hours of welding time per frame and yet sell for far more than the drums. Megan believes that TufStuff could sell up to 1,600 bike frames per year to bike manufacturers at a price of $239 each. The accounting department has provided the following data concerning the proposed new product:

The bike frames could be produced with existing equipment and personnel. Manufacturing overhead is allocated to products on the basis of direct labor-hours. Most of the manufacturing overhead consists of fixed common costs such as rent on the factory building, but some of it is variable. The variable manufacturing overhead has been estimated at $1.35 per WVD drum and $1.90 per bike frame. The variable manufacturing overhead cost would not be incurred on drums acquired from the outside supplier.
Selling and administrative expenses are allocated to products on the basis of revenues. Almost all of the selling and administrative expenses are fixed common costs, but it has been estimated that variable selling and administrative expenses amount to $0.75 per WVD drum whether made or purchased and would be $1.30 per bike frame.
All of the company's employees-direct and indirect-are paid for full 40 -hour workweeks and the company has a policy of laying off workers only in major recessions.

Required:
Compute the contribution margin per unit for:
a. Purchased WVD drums.
b. Manufactured WVD drums.
c. Manufactured bike frames.

Answer 1

The selling price of one unit of products less the variable manufacturing expenses is the contribution margin per unit. The amount that each sale contributes to covering fixed costs is known as the contribution margin per unit. It will show the profit per unit sold once the fixed costs have been paid.

How to find the Contribution margin per unit and Contribution margin per welding hour?

Computation of Contribution margin per unit (Assuming Direct Labor exists Fixed cost)

Manufactured

Purchased WVD drums  WVD drums    Bike frames

Selling price                            $233.00 $233.00 $344.00

Variable costs:  

Direct materials                      $201.00 $52.10 $112.00

Variable manufacturing overhead $0.00 $1.35 $1.90

Variable selling and administrative  $0.75  $0.75  $3.40

Total variable cost                          201.75  54.2 $117.30

Contribution margin per unit $31.25 $178.80 $226.70

Computation of Contribution margin per welding hour

Manufactured

                                                   WVD drums        Bike frames

Contribution margin per unit          $178.80              $226.70

Welding hours per unit                         0.4              0.5

Contribution margin per welding hour   $447.00      $453.40

Ranking                                                     2                 1

To learn more about contribution margin per unit refer to:

brainly.com/question/15684424

#SPJ4