Effie Corporation Produces Two Products,P and Q

question 42

Multiple Choice

Effie Corporation produces two products,P and Q.P sells for $9.50 per unit; Q sells for $5.50 per unit.Variable costs for P and Q are $5.00 and $3.00,respectively.There are 5300 direct labor hours per month available for producing the two products.Product P requires 3.00 direct labor hours per unit,and product Q requires 5.00 direct labor hours per unit.The company can sell as many of either product as it can produce.What is the maximum monthly contribution margin that Effie can generate under the circumstances? (Round your answer to nearest whole dollar.)

• A) $7950
• B) $4417
• C) $23,850
• D) $13,250

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Definitions:

Sunk Costs

Sunk costs refer to expenses that have already been incurred and cannot be recovered, and therefore should not affect future business decisions.

Opportunity Costs

The missed opportunity to benefit from different options when a single choice is made.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Diseconomies of Scale

The phenomenon where an increase in production leads to higher costs per unit due to inefficiencies that arise from scaling up operations.