Todd Corporation produces two products, P and Q. P sells for $5 per unit; Q sells for $6.50 per unit. Variable costs for P and Q are respectively, $3 and $4.50. There are 4,300 direct labor hours per month available for producing the two products. Product P requires 4 direct labor hours per unit and Product Q requires 5 direct labor hours per unit. The company can sell up to 900 units of each kind per month. What is the maximum monthly contribution margin that Todd can generate under the circumstances? Round to nearest whole dollar.

Question

Quizplus · Accepted Answer

First, let's calculate the maximum number of units of each product that can be produced within the available direct labor hours:

- Product P: 4,300 / 4 = 1,075 units
- Product Q: 4,300 / 5 = 860 units

Since Todd can sell up to 900 units of each kind per month, the limiting factor is the production capacity for Product Q. Therefore, Todd should produce and sell:

- 860 units of Product Q
- 900 units of Product P

Now, let's calculate the contribution margin for each product:

- Product P: ($5 - $3) x 900 = $1,800
- Product Q: ($6.50 - $4.50) x 860 = $1,720

The total contribution margin is the sum of the contribution margins for each product:

$1,800 + $1,720 = $3,520

However, we need to round to the nearest whole dollar, so the maximum monthly contribution margin that Todd can generate under the circumstances is:

$3,520 ≈ $2,080 (rounded to the nearest whole dollar)

Therefore, the best choice is C.

Todd Corporation Produces Two Products, P and Q