Santorino Company Produces Two Models of a Component, Model K-3

question 118

Multiple Choice

Santorino Company produces two models of a component, Model K-3 and Model P-4.The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14.Each model must spend time on a special machine.The firm owns two machines that together provide 4,000 hours of machine time per year.Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time.
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What is the contribution margin per unit of scarce resource (machine time) for Model P-4?

• A) $6
• B) $12
• C) $24
• D) $14
• E) $28

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Definitions:

Linear Depreciation

A method of allocating the cost of a tangible asset over its useful life in a linear, or evenly spread, manner.

Depreciates

To decrease in value over time, typically used in reference to assets or property.

Bicycle

A human-powered, pedal-driven vehicle with two wheels attached to a frame, one behind the other.

Parallel

Describes lines, planes, or surfaces that are always the same distance apart and never intersect.