Let's break down the problem step by step: ## **Step 1: Extract Relevant Data** | | Product A | Product B | Product C | |------------------|-----------|-----------|-----------| | Sales price | $35 | $45 | $75 | | Variable costs | $17 | $21 | $32 | | Fixed costs | $5 | $5 | $5 | | Labor hours/unit | 0.5 | 0.8 | 1.25 | **Labor hour constraint:** 16,000 hours/month **Assume infinite demand for all products.** --- ## **Step 2: Calculate Contribution Margin per Unit** Contribution margin per unit = Sales price - Variable cost - **A:** $35 - $17 = **$18** - **B:** $45 - $21 = **$24** - **C:** $75 - $32 = **$43** --- ## **Step 3: Contribution Margin per Labor Hour** Contribution per labor hour = Contribution margin per unit / Labor hours per unit - **A:** $18 / 0.5 = **$36** - **B:** $24 / 0.8 = **$30** - **C:** $43 / 1.25 = **$34.40** --- ## **Step 4: Ranking the Products** Rank by highest contribution per labor hour (since labor hours are the bottleneck): 1. **Product A:** $36 per labor hour 2. **Product C:** $34.40 per labor hour 3. **Product B:** $30 per labor hour --- ## **Step 5: Preferred Production** **Since the company is limited by labor hours and has infinite demand, it should produce the product with the highest contribution margin per labor hour.** ### **Preferred Product:** **Product A** (contributes $36 per labor hour) --- ## **Step 6: Justification** - Labor is the limiting factor (constraint). - To maximize profit, allocate the available labor hours to the product that gives the highest contribution margin per labor hour. - In this case, **Product A** is preferred. --- ## **Final Answer** **The company should produce Product A, as it yields the highest contribution margin per labor hour ($36). This will maximize the company's profit given the labor hour constraint.** --- If you have any other questions or need further breakdown, feel free to ask!