Question

Hanson Corp. produces three products, and is currently facing a labor shortage – only 4,200 hours are available this month. The selling price, costs, labor requirements, and demand of the three products are as follows:   

	Product A		Product B		Product C
Selling price	$	59.00	$	38.00	$	51.00
Variable cost per unit	$	53.00	$	30.00	$	47.00
Direct labor hours per unit		1.5		2.7		2.0
Demand		1,600		1,400		1,600

a. In what order should Hanson prioritize production of the products?

	A,B,C
	C,B,A
	B,A,C
	C,A,B

b. How many of each product should be sold during the labor shortage to maximize profit? (Leave no cells blank - be certain to enter "0" wherever required. Round your answer to the nearest whole number.)

   # of Products

A-

B-

C-


c. What is the total contribution margin if Hanson prioritizes production according to its limited resources? (Round your intermediate calculations to the nearest whole number and final answer to the nearest dollar amount.)

Total Contribution Margin-

Answer 1

SOLUTION:

a.  In what order should Hanson prioritize production of the products?

Particulars	Product A	Product B	Product C
Selling price	59.00	38.00	51.00
(-) Variable cost per unit	53.00	30.00	47.00
Contribution margin per unit	6.00	8.00	4.00
(/) Direct labor hours per unit	1.5	2.7	2.0
Contribution margin per direct labor hour	4.00	2.96	2.00

As the direct labor hours is in shortage, the company will produce the products in the order of higher contribution margin per direct labor hour.

Ranks	Product
1	A
2	B
3	C

b. How many of each product should be sold during the labor shortage to maximize profit?

Particulars	Product A	Product B	Product C
Direct labor hours per unit	1.5	2.7	2.0
(*) Demand	1600	1400	1600
Total Direct labor hours needed	2400	3780	3200

Total direct labor hours available = 4200 hours

Direct labor hours left after producing product A = Total direct labor hours available - Total direct labor hours available for product A = 4200 - 2400 = 1800

With the Direct labor hours left after producing product A, only few units of product B can be produced

Units of product B the can be produced = Direct labor hours left after producing product A / Direct labor hours per unit of product B = 1800 / 2.7 = 667 units

So, the answer is : 1600 of product A, 667 of product B and 0 of product C

c. What is the total contribution margin if Hanson prioritizes production according to its limited resources?

Particulars	Product A	Product B	Product C
Selling price	59.00	38.00	51.00
(-) Variable cost per unit	53.00	30.00	47.00
Contribution margin per unit	6.00	8.00	4.00

(with its limited resources)

Total Contribution Margin = Total Contribution Margin Of A + Total Contribution Margin Of B + Total Contribution Margin Of C

= (1600 units * 6 ) + (667 units * 8) + (0 units * 4)

= 9600 + 5336 + 0

= $ 14936