Variable selling and administrative 0.85 0.85 0.40 Total variable cost 120.85 46.40 18.50 Contribution margin $ 33.15 $107.60 $46.50 Case 12-29 (continued) 3. Because the demand for the welding machine exceeds the 2,000 hours that are available, products that use the machine should be prioritized based on their contribution margin per welding hour. The computations are carried out below under the assumption that direct labor is a fixed cost and then under the assumption that it is a variable cost. Solution assuming direct labor is fixed Manufactured Mountain Bike XSX Frames Contribution margin per unit (from part 2) (a) $107.60 $46.50 Welding hours per unit (b) 0.8 hour 0.2 hour Contribution margin per welding hour (a) ÷ (b) $134.50 $232.50 per hour per hour
Variable selling and administrative 0.85 0.85 0.40 Total variable cost 120.85 46.40 18.50 Contribution margin $ 33.15 $107.60 $46.50 Case 12-29 (continued) 3. Because the demand for the welding machine exceeds the 2,000 hours that are available, products that use the machine should be prioritized based on their contribution margin per welding hour. The computations are carried out below under the assumption that direct labor is a fixed cost and then under the assumption that it is a variable cost. Solution assuming direct labor is fixed Manufactured XSX Mountain Bike Frames Contribution margin per unit (from part 2) (a) $107.60 $46.50 Welding hours per unit (b) 0.8 hour 0.2 hour Contribution margin per welding hour (a) ÷ (b) $134.50 per hour $232.50 per hour