Red Rock Enterprises is analyzing its sales mix to find out if it is maximizing

Question

Red Rock Enterprises is analyzing its sales mix to find out if it is maximizing its profits. The company produces three similar items: Alpha, Beta, and Gamma. All three of these products are made with the same equipment, and maximum productive capacity measured in machine hours is now being used. Product line statistics are as follows:

Alpha

Beta

Gamma

Current production and sales (units)

105,000

158,000

95,000

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

$20.00

$16.00

$19.00

Part 1

Determine whether the existing sales mix is the most profitable one possible. If your answer is no, offer your suggestion to improve the sales mix. Round answers to two decimal places.

Part 2

Based on your optimal sales mix from part 1 and a maximum of 2,900,000 machines hours available, indicate the number of units of Alpha, Beta, and Gamma to be produced.

Alpha

Beta

Gamma

Current production and sales (units)

105,000

158,000

95,000

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

$20.00

$16.00

$19.00

Explanation / Answer

Solution:-

Part 1:-

Optimal sales mix:-

The total productive capacity in machine hours is:

(105,000 * 10) + (158,000 * 5) + (95,000 * 13) = 3,075,000

Part 2:-

Please Rate or comment if you have any doubt regarding this solution.

Red Rock Enterprises Sales mix analysis Contribution margin reporting format Product Alpha Beta Gamma Unit sales price 63 48 84 Variable cost: Manufacturing 33 26 49 Selling 20 16 19 Total variable costs 53 42 68 Contribution margin per unit (a) 10 6 16 Machine hour recquired per unit (b) 10 5 13 Contribution margin per machine hour (a) / (b) 1.00 1.20 1.231 Rank 3 2 1

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