Question

Anne Sugar makes large ceramic pots for use in outdoor landscaping. She currently has two models, one square and the other round. Because of the size of Anne’s creations, only one pot can be fired in the kiln at a time. Information about each model follows:

	Square		Round
Sales price	$104		$154
Variable cost	$24		$56
Firing time	2.5	hours	3.5	hours

Assume that Anne can sell as many pots as she can create but that she is limited as to the number of hours that the kiln can be run.     

Compute the contribution margin per unit and contribution margin per hour of firing time.

      

Answer 1

Answer :-

The contribution margin per unit and contribution margin per hour of firing time of Square and Round models are as follows :-

	Square	Round
Sales price	$104	$154
Variable cost	$24	$56
Contribution Margin per unit = Sales price - Variable Cost	$80 (= $104 - $24 )	$98 (= $154 - $56)
Firing time	2.5 hours	3.5 hours
Contribution Margin per hour of firing time = Contribution Margin per unit / Firing time	$32 / hour (= $80 / 2.5 hours)	$28 / hour ( = $98 / 3.5 hours)