Question

Ambrose Company has only 25,000 hours of machine time each month to manufacture its two products. Product X has a contribution margin of $50, and Product Y has a contribution margin of $64. Product X requires 5 hours of machine time, and Product Y requires 8 hours of machine time. If Ambrose Company wants to dedicate 80 percent of its machine time to the product that will provide the most income, the company will have a total contribution margin of Select one: a. $210,000 b. $240,000 c. $250,000 d. $200,000

Answer 1

b. $240,000

Step-by-step explanation:

The computation of the total contribution margin is shown below:

Contribution margin per machine hour for Product X is

= $50 ÷ 5 hours

= $10/hour

And,

Contribution margin per machine hour for Product Y is

= $64 ÷ 8 hours

= $8/hour

Now

= 80% × 25,000 hours

= 20,000 hours used for Product X

Now

= 20,000 hours ÷ 5 hours per unit

= 4,000 units

And,

= 4,000 units × $50

= $200,000

And,

= 5,000 hours ÷8 hours per unit

= 625 units × $64

= $40,000

so, Total CM is

= $200,000 + $40,000

= $240,000