Buchnell Manufacturing has 66,600 labor hours available for producing M and N. C
ID: 382967 • Letter: B
Question
Buchnell Manufacturing has 66,600 labor hours available for producing M and N. Consider the following information:
If Buchnell follows proper managerial accounting practices in terms of setting a production schedule, how much contribution margin would the company expect to generate?
$62,900.
$149,300.
$150,100.
$154,300.
None of these.
Product M Product N Required labor time per unit (hours) 4 5 Maximum demand (units) 6,400 8,600 Contribution margin per unit $ 10.00 $ 10.50 Contribution margin per labor hour $2.50 $ 2.10Explanation / Answer
When there are two or more products and limited resources, the product giving maximum contribution per limited resource is produced first and all the products are ranked as per contribution margin per limited resource
In the present question, labor hours are limited. So, product giving maximum contribution per labor hour will be produced first
Product M is giving higher contribution per labor hour. So, it will be produced first and after using up resources in producing maximum of Product M, remaining resources will be used to produce product N
So, hours required to produce 6,400 units (as maximum demand is this only)
= Hours required per unit x Number of units
= 4 x 6,400
= 25,600
Remaining hours
= Total hours – Hours consumed in production of product M
= 66,600 – 25,600
= 41,000
So, units of product N produced in remaining hours
= Remaining hours / Hours required per unit of product N
= 41,000 / 5
= 8,200 units
So, Maximum contribution
= Contribution from product M + Contribution from product N
= Contribution per unit x Number of units of product M + Contribution per unit x Number of units of product N
= $10 x 6,400 + $10.5 x 8,200
= $ 150,100
So, as per above discussion, option C is the correct option
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