Question

Wood Carving Corporation manufactures three products. Because of a recent lack of skilled wood carvers, the corporation has had a shortage of available labor hours. The following per unit data relates to the three products of the corporation: Letter Openers Elvis Statues Candle Holders Selling price $ 30 $ 80 $ 42 Variable cost $ 20 $ 40 $ 20 Labor hours required 1 6 2 Assume that Wood Carving only has 1,800 labor hours available next month. Also assume that Wood Carving can only sell 800 units of each product in a given month. What is the maximum amount of contribution margin that Wood Carving can generate next month given this labor hour shortage? Multiple Choice $12,000 $19,000 $19,600 $19,800

Answer 1

Answer:

$19,600

Prod 1     Prod 2 Prod 3 Income Statement

$ 30       $ 80 $ 42,0 Selling Price

-$ 20     -$ 40 -$ 20,0 Variable Cost

$ 10       $ 40         $ 22,0 Contributing Margin    

     1              6               2 Labour Hours  

    10      7        11 Contr. Margin/Hours  

200     -    800     Quantity

200              -    1600 Labour Hours Shortage

$ 2,000      -    $ 17,600  

Explanation:

To maximize the production over the shortage of hours it's necessary  

to calculate how much it's the Contribution Marging per hour.

Contr. Margin/Hours  Prod1 -> $10,  Prod2 -> $7,  Prod3 -> $11

Once you have the number you produce as much as you can of the product with the higher Contribution Margin per hour.

As it's detailed: 800 Units of Prod3 and 200 Units of Prod1, it totalized 1.800 hours and $19,600 of Contribution Margin.