The Contribution Margin Per Machine Hour Calculator helps businesses measure the profitability of their machine usage in the production process. By calculating the contribution margin per machine hour, companies can prioritize products that maximize profitability and make informed decisions about resource allocation and production scheduling.
Formula
The contribution margin per machine hour is calculated using the formula:
Contribution Margin Per Machine Hour = Contribution Margin Per Unit / Machine Hours Per Unit
Detailed Formula Components
- Contribution Margin Per Unit:
Contribution Margin Per Unit = Selling Price Per Unit - Variable Cost Per Unit- Selling Price Per Unit: The price at which the product is sold.
- Variable Cost Per Unit: Includes all variable costs associated with producing one unit, such as material costs, labor, and overheads directly tied to production.
- Machine Hours Per Unit:
- The total time, in hours, that a machine takes to produce one unit of the product.
Importance:
The result shows the profitability of each machine hour and helps identify which products are most efficient and profitable to produce.
General Terms Table
Here’s a reference table illustrating contribution margins for various scenarios:
| Selling Price Per Unit ($) | Variable Cost Per Unit ($) | Contribution Margin Per Unit ($) | Machine Hours Per Unit | Contribution Margin Per Machine Hour ($/hr) |
|---|---|---|---|---|
| 50 | 30 | 20 | 2 | 20 / 2 = 10 |
| 100 | 40 | 60 | 3 | 60 / 3 = 20 |
| 150 | 90 | 60 | 4 | 60 / 4 = 15 |
| 200 | 120 | 80 | 5 | 80 / 5 = 16 |
| 300 | 150 | 150 | 6 | 150 / 6 = 25 |
This table demonstrates how contribution margins and machine hours affect profitability per machine hour.
Example
Let’s calculate the contribution margin per machine hour for a specific product:
- Selling Price Per Unit: $120
- Variable Cost Per Unit: $80
- Machine Hours Per Unit: 2
Step 1: Calculate the Contribution Margin Per Unit
Contribution Margin Per Unit = Selling Price Per Unit - Variable Cost Per Unit
Contribution Margin Per Unit = 120 - 80 = $40
Step 2: Calculate the Contribution Margin Per Machine Hour
Contribution Margin Per Machine Hour = Contribution Margin Per Unit / Machine Hours Per Unit
Contribution Margin Per Machine Hour = 40 / 2 = $20
Result:
The contribution margin per machine hour is $20, indicating the machine generates $20 in profit per hour for this product.
FAQs
The contribution margin per machine hour is important because it identifies which products provide the highest profitability relative to machine usage. This helps businesses prioritize production and optimize resource allocation.
Businesses can use this calculation to determine which products to prioritize when machine capacity is limited. By focusing on products with higher contribution margins per machine hour, companies can maximize overall profitability.
Yes, this calculation is ideal for comparing multiple products. By analyzing the contribution margin per machine hour for each product, businesses can choose which products to produce based on profitability and machine efficiency.