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.
Which product has the highest contribution margin per machine hour?
A) Bales
B) Tales
C) Wales
D) Bales and Tales have the same

Question

Quizplus · Accepted Answer

To find the highest contribution margin per machine hour, we need to calculate the contribution margin per unit divided by the number of machine hours required to produce that unit.

For Bales: 55 – 20 = $35 contribution margin per unit / 5 hours = $7 per machine hour 
For Tales: 78 – 50 = $28 contribution margin per unit / 7 hours = $4 per machine hour 
For Wales: 32 – 15 = $17 contribution margin per unit / 1 hour = $17 per machine hour

Therefore, Wales has the highest contribution margin per machine hour and is the best choice for maximizing revenue given the machine hour constraint.