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

Christi Hudson · Accepted Answer

Final Answer : C, Explanation :  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 unitContribution margin per unit = $50.00 - $24.00Contribution margin per unit = $26.00With 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 unitContribution margin per unit = $50.00 - ($24.00 - $3.50)Contribution margin per unit = $50.00 - $20.50Contribution margin per unit = $29.50Therefore, 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.

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