Answer:
Contribution = $35 X 2,00 = $7,000
But it has no warrant of demand therefore this additional contribution can only be realized on sale of 2,00 units.
Explanation:
Provided
Products Bales Tales Wales
Selling Price $55 $78 $32
Less: Variable Cost $20 $50 $15
Contribution per unit = $35 $28 $17
Hours per unit required 5 7 1
Contribution per hour $35/5 $28/7 $17/1
$7 $4 $17
Second highest contribution margin per hour is of Bales, first is of Wales. We need to produce and sale the product with second highest margin per hour that is Bales, but since the first 1,000 units were used to produce goods with highest contribution margin per unit, and provided here is no warrant of its demand, it shall not be produced any further.
Now Wales shall be produced as it has highest contribution margin per hour.
Units produced within 1,000 hours of Wales = 1,000/1 hours = 1,000 units.
Contribution = 1,000 units of Wales X $17 = $17,000.
But it is asked - 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 of Bales in that case
No of units = 1,000/5 = 2,00 units
Contribution = $35 X 2,00 = $7,000
But it has no warrant of demand therefore this additional contribution can only be realized on sale of 2,00 units.
