Question:

I NEED THE ANSWER TO #3- The question is "Since employees are paid for 40-hour work weeks, assume direct labor is a fixed cost. Compute the contribution margin per welding hour for (a) Manufactured WVD drums and (b) Manufactured bike frames."

Chapter 11 Analytical Thinking: TufStuff, Inc. sells a wide range of drums, bins, boxes, and other containters that are used in the chemical industry. One of the company's products is a heavy-duty, corrosion-resistant metal drum, called the WVD drum, used to store toxic waste. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,000 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding machine time, annual production is limited to 5,000 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting debartment has provided the following financial data concerning the WVD drums: Management believes 6,000 WVD drums could be sold each year if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has considered buying additional drums from an outside supplier. Harcor Industries, Inc., a supplier of quality products, would be able to provide up to 4,000 WVD-type drums per year at a price of $138 per drum, which TufStuff would resell to its customers at its normal selling price after appropriate relabeling. Megan Flores, TufStuff's production manager, has suggested the company could make better use of the welding machine by manufacturing bike frames, which would require only 0.5 hours of welding machine time per frame and yet sell for far more than the drums. Megan believes that TufStuff could sell up to 1,600 bike frames per year to bike manufacturers at a price of $239 each. The accounting department has provided the following data concerning the proposed new product: The bike frames could be produced with existing equipment and personnel. Manufacturing overhead is allocated to products on the basis of direct labor hours. Most of the manufacturing overhead consists of fixed common costs such as rent on the factory building, but some of it is variable. The variable manufacturing overhead has been estimated at $1.35 per WVD drum and $1.90 per bike frame. The variable manufacturing overhead cost would not be incurred on drums acquired from the outside supplier. Selling and administrative expenses are allocated to products on the basis of revenues. Almost all of the selling and administrative expenses are fixed common costs, but it has been estimated that variable selling and administrative expenses Since employees are paid for 40 -hour work weeks, assume direct labor is a fixed cost. Compute the contribution margin per velding hour for (a) Manufactured WVD drums and (b) Manufactured bike frames