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) $7,000
C) $4,000
D) $28,000

Question

Quizplus · Accepted Answer

Since Widgeon has already used 1,000 hours of machine time for the highest contribution margin product, the maximum additional contribution margin can be realized by utilizing the remaining 1,000 hours on the product with the second highest contribution margin per hour. Therefore, the additional contribution margin will be:

Remaining machine hours = 1,000
Contribution margin per unit = $7
Units that can be produced in 1,000 hours = 1,000/2 = 500
Additional contribution margin = 500 x $7 = $3,500

Thus, 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 is $7,000 (i.e. $3,500 x 2). Therefore, the answer is B.

Assume That Widgeon Produced Enough Product with the Highest Contribution