Hadlee Corporation produces two products,P and Q.P sells for $7.00 per unit; Q sells for $6.00 per unit.Variable costs for P and Q are $3.00 and $5.00,respectively.There are 2300 direct labor hours per month available for producing the two products.Product P requires 2.00 direct labor hours per unit,and product Q requires 2.00 direct labor hours per unit.The company can sell up to 600 units of each kind per month.What is the maximum monthly contribution margin that Hadlee can generate under the circumstances? (Round to nearest whole dollar.)

Question

Quizplus · Accepted Answer

To find the maximum monthly contribution margin, we need to calculate how many units of each product should be produced to maximize the profit. We can do this by using linear programming.

Let x be the number of units of product P and y be the number of units of product Q to be produced.

Our objective is to maximize the contribution margin: 
Contribution Margin = (Revenue - Variable Costs) 
= (7x - 3x) + (6y - 5y) 
= 4x + 1y

Subject to the constraints: 
2x + 2y ≤ 2300 (due to labor hour availability) 
x ≤ 600 (due to product P's production limit) 
y ≤ 600 (due to product Q's production limit)

Solving the above linear programming problem, we get x = 575 and y = 362.5 (rounded to the nearest unit).

Since we cannot produce fractional units, we round up y to 363.

Thus, the maximum contribution margin is: 
Contribution Margin = 4(575) + 1(363) 
= 2900 + 363 
= $3263

However, since product Q's production would be limited (it can only produce 363 units) it will be more profitable to produce 600 units of product P, since it has the higher contribution margin per unit ($4.00 compared to $1.00 for product Q).

Therefore, the best choice is to produce and sell 600 units of product P only, which will result in a maximum monthly contribution margin of:
Contribution Margin = 4(600) = $2400

Hence, the answer is Choice A.

Hadlee Corporation Produces Two Products,P and Q