Widgeon Co. manufactures three products: Bales, Tales, and Wales. The selling prices are $55, $78, and $32, respectively. The variable costs for each product are $20, $50, and $15, respectively. Each product must go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to process; Tales 7 hours; and Wales 1 hour.
-The product with the highest contribution margin per machine hour is

Question

Widgeon Co. manufactures three products: Bales, Tales, and Wales. The selling prices are $55, $78, and $32, respectively. The variable costs for each product are $20, $50, and $15, respectively. Each product must go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to process; Tales 7 hours; and Wales 1 hour.​
-The product with the highest contribution margin per machine hour is

Quizplus · Accepted Answer

Wales has the highest contribution margin per machine hour. Contribution margin per unit is calculated as selling price minus variable cost. For Wales, it's $32 - $15 = $17. Since it takes 1 hour to process, its contribution margin per machine hour is also $17. For Bales, it's $55 - $20 = $35, divided by 5 hours = $7 per machine hour. For Tales, it's $78 - $50 = $28, divided by 7 hours = $4 per machine hour. Therefore, Wales has the highest contribution margin per machine hour.