Question

Mid-Atlantic Yachts manufactures boats for seafarers. Its most popular model can accommodate twelve people and sells for $865,000. Manufacturing and other costs, all per unit, are as follows:



Mid-Atlantic has a constraint on how many yachts can be built in a year, because yacht building is a highly skilled endeavor and qualified machinists are difficult to find and retain. If the labor rate is $90 per hour, what is the contribution margin on the yacht per labor hour?

Direct material Direct labor Variable overhead Fixed overhead Variable sales and administrative expenses Traceable machine depreciation $85,000 $155,250 $35,000 $95,000 $65,000 $38,000

• A : $304.20

• B : $227.10

• C :$282.17

• D : $249.13

Answer 1

Sales	865,000
Less: Variable expense
Direct material	-85,000
Direct labor	-155,250
Variable overhead	-35,000
Variable sales and administrative expense	-65,000
Contribution Margin	$524,750

Direct labor hours = Direct labor / Direct labor rate

= 155,250/90

= 1,725 labor hours

Contribution margin per labor hour = Contribution Margin/Direct labor hours

= 524,750/1,725

= $304.20 per labor hour

Correct option is A.

Kindly comment if you need further assistance. Thanks‼!