[Anonymous]

A company produced and sold 100,000 units of a component with a variable cost of $20 per unit. Selling price is $50. 1,200 units are falied the tolerance specification. These 1,200 were reworked at a cost of $12 per unit and sold as factory seconds at $45 each. The increase in the company’s contribution margin from this component would have been

A. $14,400

B. $20,400

C. $21,600

D. $39,600

I don’t undertand, for me is letter D. (45-12)x1,200. The correct answers is letter A.

[Anonymous]

I doubt your question is complete , but I believe the answer is 1200 multiplied by the additional cost to rework the units which is 14,400. This is the additional contribution margin that the company would have had these units were originally produced according to specification .

[Author]

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