Widgeon Co. manufactures three products: Bales, Tales, and Wales. The selling pr

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. Assume that Widgeon produced enough product with the highest contribution margin per unit to use 1,000 hours of machine time. Product demand does not warrant any more production of that product. What is the maximum additional contribution margin that can be realized by utilizing the remaining 1,000 hours on the product with the second highest contribution margin per hour? a. $1,400 b. $35,000 c. $4,000 d. $28,000

Explanation / Answer

Maximum additional contribution margin that can be realized by utilizing the remaining 1,000 hours on the product with the second highest contribution margin per hour is $4,000 calculated as under:

So, the answer is c.

Bales Tales Wales Selling Price 55 78 32 Variable Costs 20 50 15 Contribution Margin per unit 35 28 17 Hours taken 5 7 1 Contribution Margin per hour 7 4 17 Enough produced by using highest contribution margin per unit 7,000 Additional contribution Margin by using second highest contribution margin per hour is 4000 2nd highest already produced This left 1st highest

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