Question

Bates Company plans to add a new item to its line of consumer product offerings. Two possible products are under consideration. Each unit of Product A costs $6 to produce and has a contribution margin of $3, while each unit of Product B costs $12 and has a contribution margin of $4. What is the differential revenue for this decision?
a. $7
b. $1
c. $6
d. $9

Answer 1

Answer:

differential revenue = $7

so correct option is a. $7

Explanation:

given data

Product A costs= $6

contribution margin = $3

Product B costs = $12

contribution margin = $4

to find out

differential revenue

solution

first we get here selling price for product A and B

selling price for product A = Product A costs + contribution margin

selling price for product A =  $6 +$3

selling price for product A = $9

and

selling price for product B = Product A costs + contribution margin

selling price for product B =  $12 + $4

selling price for product B = $16

so

differential revenue will be

differential revenue = selling price for product B - selling price for product A

differential revenue = $16 - $9

differential revenue = $7

so correct option is a. $7