Question

Paschall Corporation manufactures several different products all of which must pass through a stamping machine in...

Paschall Corporation manufactures several different products all of which must pass through a stamping machine in its fabrication department. This machine is Paschall’s constrained resource. The company would make the most profit if it produces the product that:

a) uses the least amount of stamping time.

b) generates the highest contribution margin ratio.

c) generates the highest contribution margin per unit.

d) generates the highest contribution margin per stamping machine hour.

Business   Accounting   
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Answer #1

Answer: (d) generates the highest contribution margin per stamping machine hour.

Explanation:

The criterium of CM per stamping MH will maximize total CM for the firm.

Comments on other options:

a) uses the least amount of stamping time.

This option does not take into account the CM generated by each product per MH

b) generates the highest contribution margin ratio.

This does not consider the utilization of MH.

c) generates the highest contribution margin per unit.

Does not consider the MH used per unit.

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