Sand Canyon Enterprises is analyzing its sales mix to find out if it is maximizi
ID: 2458456 • Letter: S
Question
Sand Canyon Enterprises is analyzing its sales mix to find out if it is maximizing its profits. The company produces three similar items: X, Y, and Z. All three of these products are made with the same equipment, and maximum productive capacity measured in machine hours is now being used. Products line statistics are as follows:
Current sales demand (units)
Machine hours per unit
Selling price per hour
Unit variable cost
Unit variable selling cost
X
105,000
10
$63
$33
$17
Y
158,000
5
$48
$26
$13
Z
95,000
13
$84
$49
$16
The current production capacity is 3,000,000 machine hours.
PART 1
Determine whether the existing sales mix is the most possible. If your answer is no, offer your suggestion to improve the sales mix. Round answers to two decimal places.
PART 2
How many of each product should be manufactured and sold to maximize the company's contribution margin based on the current production activity of 3,000,000 machine hours? What is the total contribution margin for that combination?
Current sales demand (units)
Machine hours per unit
Selling price per hour
Unit variable cost
Unit variable selling cost
X
105,000
10
$63
$33
$17
Y
158,000
5
$48
$26
$13
Z
95,000
13
$84
$49
$16
Explanation / Answer
Amount (in $) Particulars Product X Product Y Product Z Current sales demand (units) 105000.00 158000.00 95000.00 Machine hours per unit 10 5 13 Selling price per unit 63.00 48.00 84.00 Unit variable cost 33.00 26.00 49.00 Unit variable selling cost 17.00 13.00 16.00 Contribution per unit 13.00 9.00 19.00 Contribution per hour 1.30 1.80 1.46 Current Production Capacity 3,000,000 machine hours Maximum Production 300000 600000 230769 Thus since the contribution per hour is highest for Product Y maximum units of Product Y should be manufactured. Given the current sales demand and production capacity the following quantity of product should be produced to increase contribution. Current sales demand (units) 105000.00 158000.00 95000.00 Production per unit 105000 158000 89231 Total Machine Hours 1050000 790000 1160000 Total Contribution 1365000 1422000 1695385 Total Sales 6615000 7584000 7495385 Total Contribution Margin 20.66%
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