Reference no: EM132803379

Question - HPS Engineering makes cutting tools for joinery's operations.

It makes two types of tools: W1, a regular cutting tool, and RT6, a high-precision cutting tool. W1 is manufactured on a regular machine, but RT6 must be manufactured on both the regular machine and a high precision machine.

The following information is available:

	W1	RT6
Selling price	$105	$147
Variable manufacturing cost per unit	$30	$76
Variable marketing cost per unit	$12	$27
Budgeted total fixed overhead costs	$255800	$354950
Hours required to produce 1 unit on the regular machine	2.0	2.5

Additional information includes:

a) HPS faces a capacity constraint on the regular machine of 45000 hours per year.

b) The capacity of high-precision machine is not a constraint.

c) Of the $354950 budgeted fixed overhead costs of RT6, $295000 are lease payments for the high-precision machine. This cost is charged entirely to RT6 because HPS uses the machine exclusively to produce RT6. The lease agreement for the high-precision machine can be canceled at any time without penalties.

d) All other overhead costs are fixed and cannot be changed.

Required - Calculate the contribution margin per one hour of the constrained resource for RT6.