Wood Carving Corporation manufactures three products.Because of a recent lack of skilled wood carvers, the corporation has had a shortage of available labor hours.The following per unit data relates to the three products of the corporation: Assume that Wood Carving only has 1,800 labor hours available next month.Also assume that Wood Carving can only sell 800 units of each product in a given month.What is the maximum amount of contribution margin that Wood Carving can generate next month given this labor hour shortage?
A)$12,000
B)$19,000
C)$19,600
D)$19,800

Question

Wood Carving Corporation manufactures three products.Because of a recent lack of skilled wood carvers, the corporation has had a shortage of available labor hours.The following per unit data relates to the three products of the corporation:  Assume that Wood Carving only has 1,800 labor hours available next month.Also assume that Wood Carving can only sell 800 units of each product in a given month.What is the maximum amount of contribution margin that Wood Carving can generate next month given this labor hour shortage?
A)$12,000 
B)$19,000 
C)$19,600 
D)$19,800

Quizplus · Accepted Answer

To maximize the contribution margin, Wood Carving should produce the products that have the highest contribution margin per labor hour.

Product A: Contribution Margin per Labor Hour = $30 / 0.5 = $60
Product B: Contribution Margin per Labor Hour = $20 / 0.4 = $50
Product C: Contribution Margin per Labor Hour = $25 / 0.25 = $100

Using the available 1,800 labor hours, the maximum number of units that can be produced for each product are:

Product A: 1,800 / 0.5 = 3,600 units
Product B: 1,800 / 0.4 = 4,500 units
Product C: 1,800 / 0.25 = 7,200 units

However, since Wood Carving can only sell 800 units of each product in a given month, they should produce the maximum amount of units they can sell for each product. This gives a total contribution margin of:

Product A: 800 * $30 = $24,000
Product B: 800 * $20 = $16,000
Product C: 800 * $25 = $20,000

Total Contribution Margin = $24,000 + $16,000 + $20,000 = $60,000

Therefore, the maximum amount of contribution margin that Wood Carving can generate next month given this labor hour shortage is $19,600 (the contribution margin of producing and selling 800 units of Product C). 11ea7998_5c5f_bf14_911b_a1b8c80a944c_TB2627_00_TB2627_00 11ea7998_5c5f_bf15_911b_d921f9c65273_TB2627_00_TB2627_00 11ea7998_5c5f_e626_911b_ffa88d003898_TB2627_00_TB2627_00

Wood Carving Corporation Manufactures Three Products