Question

Cordova manufactures three types of stained glass window, cleverly named Products A, B, and C. Information about these products follows:

	Product A		Product B		Product C
Sales price	$	39.00	$	49.00	$	79.00
Variable costs per unit		20.75		21.00		40.75
Fixed costs per unit		7.00		7.00		7.00
Required number of labor hours		1.25		2.00		2.50

Cordova currently is limited to 45,000 labor hours per month.

Required:
Assuming an infinite demand for each of Cordova’s products, determine contribution margin per direct labor hour. (Round your answers to 2 decimal places.)

Cordova manufactures three types of stained glass window, cleverly named Products A, B, and C. Information about these products follows:

	Product A		Product B		Product C
Sales price	$	39.00	$	49.00	$	79.00
Variable costs per unit		20.75		21.00		40.75
Fixed costs per unit		7.00		7.00		7.00
Required number of labor hours		1.25		2.00		2.50

Cordova currently is limited to 45,000 labor hours per month.

Required:
Assuming an infinite demand for each of Cordova’s products, determine contribution margin per direct labor hour. (Round your answers to 2 decimal places.)

Product A = ---------- CM per DL hour

Product B= ----------- CM per DL hour

Product C=------------ CM per DL hour

Answer 1

Answer:

Contribution margin per direct labor hour:

Product A = $14.6 per DLhour

Product B = $14 per DL hour

Product C = $15.3 per DL hour

Working note:

	Product A	Product B	Product C
Sales price	$39	$49	$79
Less:Variable cost	($20.75)	($21)	(40.75)
= Contribution margin	$18.25	$28	$38.25
Direct Labor hours required	1.25 hours	2 hours	2.5 hours
Contribution margin per Direct Labor hour =Contribution margin / DL hour required	$18.25/1.25 = $14.6	$28/2 = $14	$38.25/2.5 = $15.3

note: for calculating CONTRIBUTION MARGIN PER DIRECT LABOR HOUR, fixed cost per unit can be ignored.