Elfalan Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 80,000 units per month is as follows: The normal selling price of the product is $67.80 per unit.An order has been received from an overseas customer for 3,000 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.90 less per unit on this order than on normal sales.Direct labor is a variable cost in this company.What is the contribution margin per unit on normal sales? (Round your intermediate calculations to 2 decimal places.)
A) $7.20 per unit
B) $33.40 per unit
C) $5.80 per unit
D) $7.70 per unit

Question

Elfalan Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 80,000 units per month is as follows:  The normal selling price of the product is $67.80 per unit.An order has been received from an overseas customer for 3,000 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.90 less per unit on this order than on normal sales.Direct labor is a variable cost in this company.What is the contribution margin per unit on normal sales? (Round your intermediate calculations to 2 decimal places.)
A) $7.20 per unit 
B) $33.40 per unit 
C) $5.80 per unit 
D) $7.70 per unit

Quizplus · Accepted Answer

The contribution margin per unit on normal sales can be calculated as follows:
Contribution margin per unit = Selling price per unit - Variable cost per unit
Variable cost per unit = Direct materials + Direct labor + Variable overhead + Variable selling and administrative expense
Variable cost per unit = $13.60 + $8.20 + $2.40 + $7.00 = $31.20
Contribution margin per unit = $67.80 - $31.20 = $36.60
Therefore, the contribution margin per unit on normal sales is $36.60.
Since the order from the overseas customer has a lower variable selling and administrative expense of $1.90 per unit, the contribution margin per unit on this order can be calculated as:
Contribution margin per unit on order = Selling price per unit - Variable cost per unit on order
Variable cost per unit on order = Direct materials + Direct labor + Variable overhead + (Variable selling and administrative expense - $1.90)
Variable cost per unit on order = $13.60 + $8.20 + $2.40 + $5.10 = $29.30
Contribution margin per unit on order = $67.80 - $29.30 = $38.50
Therefore, the contribution margin per unit on the order is $38.50.
Since the contribution margin per unit on the order is higher than the contribution margin per unit on normal sales, it would be beneficial for Elfalan Corporation to accept the overseas customer's order at the discounted price. Choice B is the best choice.

Elfalan Corporation Produces a Single Product