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. Assuming that Widgeon Co. can sell all of the products it can make, what is the maximum contribution margin it can earn per month

Answer 1

Answer:

$3,400

Explanation:

Particulars                                    Bales      Tales     Wales

Selling price                                   55            78         32

- Variable costs                             20           50        15

Contribution margin                       35           28         17

Required hours to process           5 hrs     7 hrs      1 hrs

Contribution margin per hours        7            4         17

Therefore, Widgeon Co. will earn maximum contribution only if it uses all its machine hours for production of wales

Maximum contribution margin = Contribution margin per hour * Number of machine hours

Maximum contribution margin = 17 * 2,000 hours

Maximum contribution margin = $3,400