TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers 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 wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,200 hours of welding time is available annually on the machine. Because each drum requires 0.8 hours of welding machine time, annual production is limited to 2,750 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums:

WVD DrumsSelling price per drum$161.00Cost per drum:Direct materials$45.90Direct labor ($18 per hour)4.50Manufacturing overhead4.55Selling and administrative expense16.8071.75Margin per drum$89.25

Management believes 3,250 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 1,700 WVD-type drums per year at a price of $140 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 that the company could make better use of the welding machine by manufacturing bike frames, which would require only 0.2 hours of welding machine time per frame and yet sell for far more than the drums. Megan believes that TufStuff could sell up to 3,200 bike frames per year to bike manufacturers at a price of $72 each. The accounting department has provided the following data concerning the proposed new product:

Bike FramesSelling price per frame$72.00Cost per frame:Direct materials$18.90Direct labor ($18 per hour)22.50Manufacturing overhead17.15Selling and administrative expense7.9066.45Margin per frame$5.55

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 $1.19 per WVD drum and $2.00 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 amount to $0.99 per WVD drum whether made or purchased and would be $1.80 per bike frame.

All of the company's employeesdirect and indirectare paid for full 40-hour workweeks and the company has a policy of laying off workers only in major recessions.

4. Redo requirements (2) and (3) making the opposite assumption about direct labor from the one you originally made. In other words, if you treated direct labor as a variable cost, redo the analysis treating it as a fixed cost. If you treated direct labor as a fixed cost, redo the analysis treating it as a variable cost.

a. Compute the contribution margin per unit for [assume direct labor is a variable cost]:(Do not round intermediate calculations. Round your answers to 2 decimal places.)