Question

A company produces and sells three products.

	Product 1	Product 2	Product 3
Selling price per unit	$100	$200	$150
Contribution Margin per Unit	$20	$80	$60
Direct labor hours per unit	2	6	4

What is the maximum total monthly contribution margin that the company can earn if it has only 1000 direct labor hours per month and monthly demand for each product is unlimited?  (Round to the nearest dollar.)

Answer 1

• Since the demands are unlimited, that Product will be produced from limited DLHs, that has the MAXIMUM contribution per direct labor hour (DLH)
• Working

		Product 1	Product 2	Product 3
A	CM per unit	$20	$80	$60
B	DLH per unit	2	6	4
C = A/B	Contribution margin per DLH	$10	$13	$15

• Hence, Product 3 will be produced from available 1000 DLHs.
• Maximum Total Contribution from 1000 DLHs
  = 1000 DLHs x $ 15 CM per unit of DLH for Product 3
  = $ 15,000 Answer