Question
Assume that Alpine Corp manufactures three products: (1) downhill skis, (2) cross country skis, and (3) snowboards. Total output, however, is limited to what can
Assume that Alpine Corp manufactures three products: (1) downhill skis, (2) cross country skis, and (3) snowboards. Total output, however, is limited to what can be produced in 8,000 hours of direct labor. The contribution margin per direct labor hour required to complete each of the companys products is as follows.
Contribution margin by unit
Product | Selling price | Variable cost | Contribution margin (CM) | Direct labor hours |
Downhill skis | $650 | $390 | $260 | 6.5 |
Cross country skis | $350 | $245 | $105 | 3.5 |
snowboards | $200 | $110 | $90 | 2.0 |
Assume further that customer demand for each product is as follows:
downhill skis - 740
cross country skis - 400
Snowboards - 930
What is the maximum contribution margin that Fran's Studio can achieve given the constraint on direct labor hours and the customer demand for the product (recognizing that production should be limited to the maximum customer demand)?
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