Effie Corporation produces two products,P and Q.P sells for $8.00 per unit; Q sells for $6.00 per unit.Variable costs for P and Q are $2.00 and $5.00,respectively.There are 7300 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 4.00 direct labor hours per unit.The company can sell as many of either product as it can produce.What is the maximum monthly contribution margin that Effie can generate under the circumstances? (Round your answer to nearest whole dollar.)

Question

Quizplus · Accepted Answer

The maximum monthly contribution margin is $43,800. This is calculated by multiplying the contribution margin per unit for each product by the maximum number of units that can be produced and sold. The contribution margin per unit for product P is $6.00 ($8.00 selling price - $2.00 variable cost), and the contribution margin per unit for product Q is $1.00 ($6.00 selling price - $5.00 variable cost). The maximum number of units that can be produced and sold of product P is 3650 (7300 direct labor hours / 2.00 direct labor hours per unit), and the maximum number of units that can be produced and sold of product Q is 1825 (7300 direct labor hours / 4.00 direct labor hours per unit). Therefore, the maximum monthly contribution margin is $43,800 ($6.00 x 3650 + $1.00 x 1825).

Effie Corporation Produces Two Products,P and Q