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Contribution margin per machine hour for Karpet Kleen

Empire Company makes two products: Karpet Kleen and Fabric Kleen. Operating information from the previous year is as follows:

Karpet Kleen Fabric Kleen
Units produced & sold 5000 3000
Machine hours used 5000 2000
Sales price per unit $6 $9
Variable cost per unit $4 $8

Fixed costs of $2000 per year are presently allocated equally between both products. If the product mix were to change, total fixed costs would remain the same.

A) The contribution margin per machine hour for Karpet Kleen is: ?

B) Assuming there is unlimited demand for both products and Empire has 12,000 machine hours available, how many units of each product should be produced and sold ?

Solution Preview

A) The contribution margin per machine hour for Karpet Kleen is: ?

Contribution margin per machine hour for Karpet Kleen = (Sales Price per unit-Variable cost per unit)/Machine hour per unit
=(6-4)/(5000/5000)
=$2.00 per machine hour

B) Assuming there is unlimited demand for both products and Empire has 12,000 machine ...

Solution Summary

This provides the steps to calculate the contribution margin per machine hour for Karpet Kleen

$2.19