Buchnell Manufacturing has 31,000 labor hours available for producing M and N. Consider the following information: $\begin{array}{lcc}&\text { Product M }&\text { Product } \mathrm{N}\
\text { Required labor time per unit (hours) } & 2 & 3 \
\text { Maximum demand (units) } & 6,500 & 8,000 \
\text { Contribution margin per unit } & \$ 5.00 & \$ 5.70 \
\text { Contribution margin per labor hour } & \$ 2.50 & \$ 1.90
\end{array}$ If Buchnell follows proper managerial accounting practices in terms of setting a production schedule, how much contribution margin would the company expect to generate?
A) $31,450.
B) $63,100.
C) $66,700.
D) $78,100.
E) None of the other answers are correct.

Question

Quizplus · Accepted Answer

The company should prioritize the product with the highest contribution margin per labor hour, which is Product M at $2.50 per hour. With 31,000 labor hours available, they can produce 15,500 units of M (31,000 / 2 hours per unit), but the maximum demand is 6,500 units. So, they produce 6,500 units of M, using 13,000 hours, generating $32,500 (6,500 units * $5). The remaining 18,000 hours are used for N, producing 6,000 units (18,000 / 3 hours per unit), generating $34,200 (6,000 units * $5.70). Total contribution margin is $66,700 ($32,500 + $34,200).

Buchnell Manufacturing Has 31,000 Labor Hours Available for Producing M