Exercise 23-9 Sales mix determination and analysis LO A1 Colt Company owns a mac

Question

Exercise 23-9 Sales mix determination and analysis LO A1 Colt Company owns a machine thet can produce two specialized products. Production time for Product TLX Is three units per hour and for Product MTV is five units per hour. The machine's capacity is 2,400 hours per year. Both products are sold to a single customer who has agreed to buy all of the company's output up to a maximum of 4,080 units of Product TLX and 5,550 units of Product MTV Selling prices and variable costs per unit to produce the products follow. Selling price per unit Variable costs per unit $13.00 3.90 $7.80 4.68 Determine the company's most profitable sales mix and the contribution margin that results from that sales mix. (Round cost per unit answers to 2 decimal places.) Product TLX Product MTV Contribution margin per unit Contribution margin per production hour Product TLX Product MTVTotal Maximum number of units to be sold 4,080 5,550 Hours required to produce maximum units For Most Profitable Sales Mix Product TLX Product MTVTotal Hours dedicated to the production of each product Units produced for most profitable sales mix Contribution margin per unit Total contribution margin

Explanation / Answer

Note for understanding

Since the maximum available machine hour is 2,400 hours & contribution per hour of Product TLX is higher than that of Product MTV , thus company wants to produce maximum units of Product TLX ie 4,080 units. & with the remaining available machine hour Product MTV will produce

Product TLX Product MTV Total Contribution Margin Per unit $13 - $3.90= $9.10 $7.80 - $4.68 = $3.12 Contribution Margin Per Production Hour 3 units * $9.10 = $27.30 5 units * $3.12 = $15.60 Maximum number of units to be sold 4,080 5,550 9,630 Hours required to produce maximum units 4,080 / 3 units per hour = 1,360 5,550 / 5 units per hour = 1,110 2,470 For Most Profitable Sales Mix Hours dedicated to the production of each product 1,360 2,400 - 1,360 = 1,040 2,400 Unit produce for most profitable sales mix 4,080 1,040 * 5 units per hour = 5,200 Contribution Margin per unit $9.10 $3.12 Total Contribution Margin 4,080 units*$9.10 = 37,128 5,200 units*$3.12 = 16,224 53,352

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