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?
a. $56,000.
b. $34,000.
c. $49,000.
d. $70,000.

Answer 1

Answer:

b. $34,000.

Explanation:

The computation of contribution margin is shown below:-

Particulars          Bales      Tales     Wales

Seeling price     $55          $78          $32

Variable cost     $20           $50         $15

Contribution

margin                $35          $28          $17

Required hour to

process                5             7              1

Contribution margin

per hour             7                4              17

Maximum contribution margin is

= Contribution margin per hour × number of machine hours

= 17 × 2,000

= $34,000