Question

White Oak Inc. manufactures two products. Both products require highly skilled labor which is the only constrained resource that prevents more units from being manufactured. The company has two full time employees who provide the skilled labor. They are available for a total of 80 hours per week. The company can sell more units than it can manufacture. The product information for the two products is given below.

	Product M	Product P
Selling price per unit	0	0
Variable cost per unit	63	50
Contribution margin per unit	44	30
Hours of specialized labor per unit	.5	.25

1 - What is the contribution margin per unit of constrained resource (hour) for Product M? $

2 - What is the contribution margin per unit of constrained resource (hour) for Product P? $

3 - If demand were unlimited for both products, which product should the company produce? Product M/Product P

4 - What is the maximum contribution margin the company can achieve per week given the current labor constraint $

Answer 1

1) Contribution margin per hour

	Proudct M
Contribution margin per unit	44
Labor hour per unit	.5
Contribution margin per hour	88

2) Contribution margin per hour

	Proudct P
Contribution margin per unit	30
Labor hour per unit	0.25
Contribution margin per hour	120

3) Product P should be manufactured

4) Maximum contribution margin = 80*2*7*120 = $134400