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Maximum Amount of Contribution Margin

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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:

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Sales price $31 $83 $65
Variable costs $19 $60 $17
Labor hours required 1 6 2

Assume that Wood Carving only has 1,810 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?


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Solution Preview

Since the labor hour is the major constrain, we need to maximize the contribution margin per hour. Contribution margin per unit is calculated as unit price - unit variable cost. Contribution margin per unit is calculated using the contribution margin per unit divided by the number of hours required per unit. Please see below:


Solution Summary

This solution provides calculations for maximum amount of contribution margin.