Kent Co.manufactures a product that sells for $50.00 and has variable costs of $24.00 per unit.Fixed costs are $260,000.Kent can buy a new production machine that will increase fixed costs by $11,400 per year,but will decrease variable costs by $3.50 per unit.Compute the contribution margin per unit if the machine is purchased.
A)$22.50.
B)$26.00.
C)$29.50.
D)$28.50.
E)$27.50.

Question

Quizplus · Accepted Answer

To calculate the contribution margin per unit with the new machine, we first need to calculate the contribution margin per unit without the new machine:

Contribution margin per unit = selling price per unit - variable cost per unit
Contribution margin per unit = $50.00 - $24.00
Contribution margin per unit = $26.00

With the new machine, the variable cost per unit decreases by $3.50, so the new contribution margin per unit becomes:

Contribution margin per unit = selling price per unit - variable cost per unit
Contribution margin per unit = $50.00 - ($24.00 - $3.50)
Contribution margin per unit = $50.00 - $20.50
Contribution margin per unit = $29.50

Therefore, the best choice is option C, as the contribution margin per unit increases from $26.00 to $29.50 with the new machine, resulting in a higher profit margin per unit produced.

Kent CoManufactures a Product That Sells for $50