maximum contribution margin accounting question need help today

Question

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:

 

Letter Openers :

 

sales price : $30

variable costs : $20

labor hours : 1

 

Elvis statues :

 

sales price : $80

variable costs :  $40

labor hours : 6

 

Candle Holders:

Sales Price : $42

Variable Costs : $20

Labor Hours : 2

 

Question : Assume that Wood Carving only has 1,800 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?
A. $12,000
B. $19,000
C. $19,600
D. $19,800
E. None of the above

 

Answer was C) but I need help with steps as to how. One solution showed this : 

Letter Elvis Candle
CM $10 $40 $22
CM per LH $10 $6.7 $11
200 units 800 units
200 lhrs

200 * $10 + 800 * 22 = $19,600

 

I am confused because it says maximum sales of 800 but its showing 200 units and 800 units which means 1000 units sold. Also where is 200 lhrs coming from?

 

 

Thanks.

Answer 1

Sagnik,

 

Here you have to consider which product gives you maximum contribution per labor hr.

 

Letter openers: (30-20)/1 = 10

Elvis S: (80-40)/6 = 6.66

Candle H: (42-20)/2 = 11

 

So the company will make maximum amount of candle holders it can followed by Letter O's and then Elvis S's.

 

It can make 800 candle holders, so the contribution margin is 800*22= 17600.

 

800 candle holders account for 1600 labor hrs.

 

The remaining 200 labor hrs will be used for letter openers. They can make 200 letter openers.

 

Contribution margin is 200*10 = 2000

 

Total contribution margin is $17600 + $2000 = $19,600