Underwood,Inc.manufactures two products.It currently has 2,000 hours of direct labor and 1,000 hours of machine time available per month.The table below lists the contribution margin,labor and machine time requirements,and demand for each product. What is the contribution margin per machine hour for Product A?
A)$12.00
B)$15.00
C)$20.00
D)$24.00

Question

Underwood,Inc.manufactures two products.It currently has 2,000 hours of direct labor and 1,000 hours of machine time available per month.The table below lists the contribution margin,labor and machine time requirements,and demand for each product.  What is the contribution margin per machine hour for Product A?
A)$12.00 
B)$15.00 
C)$20.00 
D)$24.00

Quizplus · Accepted Answer

To calculate the contribution margin per machine hour for Product A, we need to divide the contribution margin of Product A by the machine hours required for Product A:

Contribution margin per machine hour for A = Contribution margin of A / Machine hours for A
= ($40 - $20) / 1
= $20

Therefore, the contribution margin per machine hour for Product A is $20. Choice (B) is correct.

To determine the best choice(s), we need to calculate the contribution margin per unit of each product:

Contribution margin per unit for Product A = $20
Contribution margin per unit for Product B = $60

Given the limited availability of direct labor and machine time, we need to choose the product(s) that provide the highest contribution margin per unit of the limiting factor(s). In this case, the limiting factors are direct labor and machine time.

Product A requires 2 hours of direct labor and 1 machine hour, while Product B requires 4 hours of direct labor and 2 machine hours. Therefore, the contribution margin per unit of direct labor and machine time for each product is:

Product A: 
- Contribution margin per unit of direct labor = $20 / 2 = $10
- Contribution margin per unit of machine time = $20 / 1 = $20

Product B: 
- Contribution margin per unit of direct labor = $60 / 4 = $15
- Contribution margin per unit of machine time = $60 / 2 = $30

Based on these calculations, choosing Product A would be the best choice in terms of maximizing the contribution margin per unit of machine time, while choosing Product B would be the best choice in terms of maximizing the contribution margin per unit of direct labor. Therefore, the best choice(s) would depend on the specific goals or constraints of the company.