Castor Corp.produces three products,and is currently facing a labor shortage - only 3,000 hours are available this month.The selling price,costs,labor requirements,and demand of the three products are as follows: What is the total contribution margin if Castor Corp.prioritizes production according to its limited resources?
A)$30,000
B)$25,000
C)$20,000
D)$60,000

Question

Castor Corp.produces three products,and is currently facing a labor shortage - only 3,000 hours are available this month.The selling price,costs,labor requirements,and demand of the three products are as follows:  What is the total contribution margin if Castor Corp.prioritizes production according to its limited resources?
A)$30,000 
B)$25,000 
C)$20,000 
D)$60,000

Quizplus · Accepted Answer

To prioritize production according to its limited resources, Castor Corp. should produce product C first, as it has the highest contribution margin per labor hour ($60). Next, they should produce product A, as it has the second highest contribution margin per labor hour ($40). Finally, they should not produce product B, as it has the lowest contribution margin per labor hour ($20).

With this production plan, Castor Corp. can produce 1,000 units of C (requiring 2,000 labor hours) and sell them for a contribution margin of $60,000. They can then produce 500 units of A (requiring another 1,500 labor hours) and sell them for a contribution margin of $20,000. The total contribution margin from these two products would be $80,000.