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What Does Contribution Margin Mean

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A- To determine contribution margin per labor. The contribution margin for Product M will have to be divided by the labor hours it takes to produce the product. The same thing will have to take place for Product N. The Contribution margin for Product N will have to be divided by the labor hours it takes to produce the product. So in this particular case when the contribution margin for Product M is $24.00 and the labor hours to produce is 3. The Contribution margin per labor hour is $8.00. The contribution margin for Product N is $30 and the labor hours to produce is 5. The contribution margin per labor hour is $6.00. Based off of this information on the contribution margin per labor hour it would seem that Product M should be produced. B- The contribution margin for Product M is $24 and units produced and sold are 8000. To determine the total contribution …show more content…

To determine the total contribution margin the contribution margin amount of $30 will need to be multiplied by the units produced and sold count of 7000. By doing this the total contribution margin amount is $210,000. Based off of this information it would seem that Product N should be sold. Because it appears to have the higher per unit contribution margin and the higher total contribution margin. C- The contribution margin for product N is $30. The machine house to produce is 6 machine hours. To determine the total contribution margin per machine hour $30 would have to be divided by 5. This makes the total contribution margin per machine hour for Product N $5.00. Based on this information the contribution margin per machine hour, Product M should be produced. Because the company has maximum capacity of 24,000 machine house and can sell all the products it produces, Product M will increase profits by $144,000 (for example $6 x 24,000 hours) where Product N can only increase profits by $120,000 (for example $5 x 24,000

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