Daisy Bath Products, Inc. (DBP) makes a variety of ceramic sinks and tubs. DBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic. The sinks sell for $200 each and have variable costs of $70. The tubs sell for $700 and have variable costs of $320. The glass and ceramic sinks and tubs require the use of specialized molding equipment. The specialized molding equipment has 5,000 hours of capacity per year. A sink uses an average of 5 hours of specialized molding equipment time; a tub uses an average of 6 hours of specialized molding equipment time. What is the contribution margin per hour of specialized molding equipment time for sinks

Contribution margin per hour = $26

Explanation:

Given:

Selling price of sink = $200 per unit

Variable cost of sink = $70 per unit

Selling price of tube = $700 per unit

Variable cost of tube = $320 per unit

Required time for specialized molding sink = 5 hours

Required time for specialized molding tube = 6 hours

Computation of contribution margin of sink:

Contribution margin = Selling price - Variable cost

Contribution margin = $200 - $70

Contribution margin = $130

Computation of contribution margin per hour of specialized molding sink:

Contribution margin per hour = Contribution margin / Required time for specialized molding sink

Contribution margin per hour = $130 / 5

Contribution margin per hour = $26