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)$35,000
B)$1,400
C)$4,000
D)$28,000

Question

Quizplus · Accepted Answer

Since 1,000 hours of machine time have already been used, the company has an additional 1,000 hours of machine time available. To maximize contribution margin, the company should produce the product with the second-highest contribution margin per hour until it runs out of machine time or until the demand for that product is satisfied.

The maximum additional contribution margin that can be realized by utilizing the remaining 1,000 hours on the second-highest contribution margin product can be calculated as follows:

Contribution margin per hour of the second-highest product = $14
Therefore, the maximum additional contribution margin = Contribution margin per hour of the second-highest product x Hours of machine time available = $14 x 1,000 = $14,000

Therefore, the correct answer is B.

Assume That Widgeon Produced Enough Product with the Highest Contribution