Hadlee Corporation produces two products,P and Q.P sells for $9.50 per unit; Q sells for $5.50 per unit.Variable costs for P and Q are $5.00 and $3.00,respectively.There are 3300 direct labor hours per month available for producing the two products.Product P requires 3.00 direct labor hours per unit,and product Q requires 5.00 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 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 find out how many units of each product can be produced within the available labor hours and the sales limit of 900 units of each product. Let's first calculate the total direct labor hours required for producing one unit of each product:
- For product P: 3.00 direct labor hours per unit
- For product Q: 5.00 direct labor hours per unit

So, for producing 900 units of each product, the total direct labor hours required would be:
- For product P: 900 units x 3.00 direct labor hours per unit = 2700 direct labor hours
- For product Q: 900 units x 5.00 direct labor hours per unit = 4500 direct labor hours

The total direct labor hours required for producing both products is 2700 + 4500 = 7200 direct labor hours. Since there are only 3300 direct labor hours available per month, we cannot produce 900 units of each product. Let's see how many units of each product we can produce within the available labor hours:

- For product P: 3300 direct labor hours / 3.00 direct labor hours per unit = 1100 units
- For product Q: 3300 direct labor hours / 5.00 direct labor hours per unit = 660 units

Since we cannot produce more than 660 units of product Q, we should produce 660 units of product Q and fill the rest of the available labor hours with product P. This would give us a total of 660 units of product Q and 440 units of product P. Now, let's calculate the total contribution margin:

- For product P: 
    - Sales revenue = 440 units x $9.50 per unit = $4,180
    - Variable cost = 440 units x $5.00 per unit = $2,200
    - Contribution margin = Sales revenue - Variable cost = $1,980
- For product Q:
    - Sales revenue = 660 units x $5.50 per unit = $3,630
    - Variable cost = 660 units x $3.00 per unit = $1,980
    - Contribution margin = Sales revenue - Variable cost = $1,650

Total contribution margin = $1,980 + $1,650 = $3,630

So the maximum monthly contribution margin that Hadlee can generate under the given circumstances is $3,630. The closest option is C) $4350, but it is not correct as it is higher than the actual maximum contribution margin. Therefore, the answer is C) $3,630.

Hadlee Corporation Produces Two Products,P and Q