2C1I LAZAR INDUSTRIES PRODUCES TWO PRODUCTS, CRATES AND TRUNKS. PER...

217.

CSO: 2C1c

LOS: 2C1i

Lazar Industries produces two products, Crates and Trunks. Per unit selling prices, costs,

and resource utilization for these products are as follows.

Crates

Trunks

Selling price

$20

$30

Direct material costs

$ 5

$ 5

Direct labor costs

8

10

Variable overhead costs

3

5

Variable selling costs

1

2

Machine hours per unit

2

4

Production of Crates and Trunks involves joint processes and use of the same facilities.

The total fixed factory overhead cost is $2,000,000 and total fixed selling and

administrative costs are $840,000. Production and sales are scheduled for 500,000 Crates

and 700,000 Trunks. Lazar has a normal capacity to produce a total of 2,000,000 units in

any combination of Crates and Trunks, and maintains no direct materials, work-in-

process, or finished goods inventory.

Due to plant renovations Lazar Industries will be limited to 1,000,000 machine hours.

What is the maximum amount of contribution margin Lazar can generate during the

renovation period?

a.

$1,500,000.

b.

$2,000,000.

c.

$3,000,000.

d.

$7,000,000.