Balcom Enterprises Is Planning to Introduce a New Product That

question 76

Multiple Choice

Balcom Enterprises is planning to introduce a new product that will sell for $110 per unit. Manufacturing cost estimates for 20,000 units for the first year of production are:
? Direct materials $1,000,000.
? Direct labor $720,000 (based on $18 per hour × 40,000 hours) .
Although overhead has not be estimated for the new product, monthly data for Balcom's total production for the last two years has been analyzed using simple linear regression. The analysis results are as follows:
$\begin{array}{lrr}\text {Dependent variable}&\text {Factory overhead costs}\\\text {Independent variable}&\text {Direct labor hours}\\\text { Intercept } & \$ 120,000 \\\text { Coefficient on independent variable } & \$ 5.00 \\\text { Coefficient of correlation } & 0.911 \\\text { R }^2 & 0.814\end{array}$


-
Based on this information, what is the expected contribution margin per unit to be earned during the first year on 20,000 units of the new product? (Assume that all marketing and administrative costs are fixed.)

• A) $14
• B) $13
• C) $99
• D) $32

---

Definitions:

Probability

The quantification of the chances that a specific event will take place.

Disjunction

A logical operation that yields truth if at least one of its operands is true; often represented by the word "or".

Negation

The logical operation that inverts the truth value of a statement or proposition.

Rain

Precipitation in the form of water droplets that falls from clouds in the atmosphere to the earth's surface.