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 take 7 hours, and Wales take 1 hour. What is the contribution margin per machine hour for Bales?
A) $5
B) $7
C) $35
D) $28

Question

Quizplus · Accepted Answer

The contribution margin per machine hour is calculated by subtracting the variable cost per unit from the selling price per unit and then dividing by the number of machine hours required to produce that unit.

For Bales:
Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
= $55 - $20
= $35

Machine hours required per unit = 5

Contribution Margin per machine hour = Contribution Margin per unit / Machine hours required per unit
= $35 / 5
= $7

Therefore, the contribution margin per machine hour for Bales is $7.

To determine the best choice, we need to consider the machine hour requirements and the contribution margin per unit for each product.

Bales require the least amount of machine hours (5) per unit and have the highest contribution margin per machine hour ($7). Therefore, producing more Bales would be the best choice for maximizing profits given the limited machine hours.