Hadlee Corporation produces two products,P and Q.P sells for $7.00 per unit; Q sells for $6.00 per unit.Variable costs for P and Q are $3.00 and $5.00,respectively.There are 2300 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 2.00 direct labor hours per unit.The company can sell up to 600 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

First, we need to determine the limiting factor for production, which is the number of direct labor hours available per month.

Product P requires 2.00 direct labor hours per unit, so the maximum number of units of P that can be produced per month is:

2300 direct labor hours / 2.00 direct labor hours per unit = 1150 units

Similarly, product Q requires 2.00 direct labor hours per unit, so the maximum number of units of Q that can be produced per month is:

2300 direct labor hours / 2.00 direct labor hours per unit = 1150 units

However, the company can only sell up to 600 units of each product per month, so the company should produce 600 units of each product.

For product P, the contribution margin per unit is:

Selling price - Variable cost = $7.00 - $3.00 = $4.00

Therefore, the total contribution margin for 600 units of P is:

$4.00 contribution margin per unit x 600 units = $2400

For product Q, the contribution margin per unit is:

Selling price - Variable cost = $6.00 - $5.00 = $1.00

Therefore, the total contribution margin for 600 units of Q is:

$1.00 contribution margin per unit x 600 units = $600

The maximum monthly contribution margin that Hadlee can generate is the sum of the contribution margins for both products:

$2400 + $600 = $3000, which rounds to $2950 (C).

Hadlee Corporation Produces Two Products,P and Q $550\$550$550 C) $2950 D) $12,050

Hadlee Corporation Produces Two Products,P and Q $\$550$ C) $2950
D) $12,050