Sand Canyon Enterprises is analyzing its sales mix to find out if it is maximizi

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

Contibution = Selling price - total variable cost

So for optimising profit it should produce Y first , then z and last X

Part 2

so Y 158,000 units will require                                        =790,000 hours

so z 95,000 units will require 95,000*13                       = 1,235,000 hours

balance hours 975,000/10 = 97,500 units of X             = 975,000

so contribution

X Y Z Contribution $13 $9 $19 Maachine hours per unit 10 5 13 Contribution per machine hours 1.3 1.80 1.46 optimal mix 3 1 2

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