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. Which product has the highest contribution margin per machine hour?

Question

Quizplus · Accepted Answer

The contribution margin per unit is calculated as selling price minus variable cost. For Bales, it is $35 ($55 - $20), for Tales, it is $28 ($78 - $50), and for Wales, it is $17 ($32 - $15). The contribution margin per machine hour is then calculated by dividing the contribution margin per unit by the hours required. For Bales, it is $7 ($35/5), for Tales, it is $4 ($28/7), and for Wales, it is $17 ($17/1). Therefore, Wales has the highest contribution margin per machine hour.