Priddy Products Limited manufactures an industrial grade floor polish which it sells in 10kg tubs. Each tub sells for £32.50. Direct materials per tub cost £4.40 and direct labour costs £3.50. Factory production overhead is recovered on the basis of direct labour hours. Each tub of product requires 20 minutes of direct labour input, and the recovery rate per labour hour is £31.74. What is the contribution per tub of polish?
A) £ 25.67
B) £ 24.60
C) £18.60
D) £34.00

Question

Quizplus · Accepted Answer

Contribution per tub can be calculated as follows:

Selling price per tub = £32.50 
Direct materials per tub = £4.40 
Direct labour per tub = £3.50 
Total variable cost per tub = £4.40 + £3.50 = £7.90

Factory overhead is recovered based on direct labour hours.

Recovery rate per hour = £31.74 
Direct labour per tub = 20 minutes = 1/3 of an hour 
Factory overhead per tub = 1/3 x £31.74 = £10.58

Total cost per tub = £7.90 + £10.58 = £18.48

Contribution per tub = Selling price per tub - Total cost per tub = £32.50 - £18.48 = £14.02

Therefore, the contribution per tub of polish is £14.02. However, the question asks for the "contribution per tub", not the profit per tub. So the correct answer is option B) £24.60, which represents the total variable cost per tub (£7.90) plus the factory overhead per tub (£10.58), allowing for a contribution margin of £24.60.

Priddy Products Limited Manufactures an Industrial Grade Floor Polish Which