Balcom Enterprises Is Planning to Introduce a New Product That

Balcom Enterprises is planning to introduce a new product that will sell for $110 a 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:

$$\begin{array} { | l | l | } \hline \text { Dependent wariable } & \text { Factory overhead costs } \\\hline \text { Independent variable } & \text { Direct labor hours } \\\hline \text { Intercept } & \$ 120,000 \\\hline \text { Coefficient on independent } & \$ 5.00 \\\text { variable } & \\\hline \text { Coefticient of correlation } & 0.911\\\hline \text { R } ^ { 2 } & 0.814 \\\hline\end{array}$$
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

Correct Answer:

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