A product is produced in three steps, with the variable cost added at each step and the yield at each step as listed below: Step Variable cost added Yield 1 $5.00 93% 2 $8.00 96% 3 $10.00 97% If the selling price is $50, and there are enough materials and labor to start out to produce 1000 units at Step 1, what is the contribution at current quality levels? Assume units are inspected after each step and defective units are scrapped. (If your answer is not exactly any of the below answers, please choose the answer choice that is closest to your answer) A $27,000 B $23,442 C $25,326 D $21,936
Question
Answer:
To find the contribution at current quality levels, we need to calculate the total variable cost added and the total selling price for 1000 units produced.Step 1: Variable cost added at Step 1 =
Yield at Step 1 = 93%
Step 2: Variable cost added at Step 2 = $
Yield at Step 2 = 96%
Step 3: Variable cost added at Step 3 =
Yield at Step 3 = 97%
Total variable cost added per unit = Variable cost added at Step 1 + Variable cost added at Step 2 + Variable cost added at Step 3
Total variable cost added per unit = $
Total variable cost added for 1000 units = Total variable cost added per unit * Number of units
Total variable cost added for 1000 units = $
Selling price per unit = $
Total selling price for 1000 units = Selling price per unit * Number of units
Total selling price for 1000 units =
Contribution = Total selling price - Total variable cost
Contribution =
Answer: $
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