Question

24. Contribution Margin per Unit of Constraint. Golf Products, Inc. sells its specialty golf club for $300 per unit. Vanable cost is $180 per unit. Each club requires 1.25 machine hours and 2.00 direct labor hours to produce. Calculate the contribution margin (a) per unit. (b) per machine hour, and (c) per direct labor hour. 25. Target Profit with Taxes. Management of Paso Company would like to achieve a target profit after taxes of $240,000. The company's income tax rate is 40 percent. What target profit before taxes is required to achieve the $240,000 after-tax profit desired by management? 26. Absorption Costing Versus Variable Costing. Describe the difference between absorption costing and variable costing. Which approach yields the highest profit when the units produced are greater than the units sold? Explain

Answer 1

24)	a)
	Contribution Margin Per Unit = Sales price - variable cost per unit
	= $300-180
	= $120 per unit
	b)
	Contribution margin per machine hour =$120/1.25
	=$96
	c)
	Contribution margin per direct labor hour = $120/2
	=$60 per hour
25)	Target profit after tax = $240000
	Target profit before tax = (After tax perofit )/(1- tax rate)
	=240000/(1-0.40)
	=$400000
26)	Under variable costing the fixed cost is considered as period cost hence not included in the product cost.
	Whereas under the absorption costing system the fixed manufacturing cost is included in period cost hence it is a portion between the cost of goods sold and closing inven,tory.
	Absorption costing system will give the highest profit.