Question

Colt Company owns a machine that can produce two specialized products. Production time for Product TLX is two units per hour and for Product MTV is four 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 1,850 units of Product MTV. Selling prices and variable costs per unit to produce the products follow.

$s per unit	Product TLX				Product MTV
Selling price per unit		$	13.50			$	8.10
Variable costs per unit			4.05				4.86

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 MTV Total Maximum number of units to be sold 4,080 1,850 Hours required to produce maximum units For Most Profitable Sales Mix Product TLX Product MTV Total Hours dedicated to the production of each product Units produced for most profitable sales mix Contribution margin per unit Total contribution margin

Answer 1

Answer of part 1:

For Product TLX:

Contribution Margin = Selling Price – Variable Cost
Contribution Margin = $13.50 - $4.05
Contribution Margin = $9.45

Contribution Margin per Production hour = Contribution Margin per unit *2
Contribution Margin Per Production Hour = $9.45 * 2
Contribution Margin per Production Hour = $18.9            

For Product MTV:

Contribution Margin = Selling Price – Variable Cost

Contribution Margin = $8.10 - $4.86

Contribution Margin = $3.24

Contribution Margin per Production hour = Contribution Margin per unit *2

Contribution Margin Per Production Hour = $3.24 * 4

Contribution Margin per Production Hour = $12.96

Answer of part 2:

For Product TLX:

Hours Required to produce maximum units = Maximum number of units to be sold / 2

Hours Required to produce maximum units = 4,080 / 2
Hours Required to produce maximum units =2,040

For Product MTV:
Hours Required to produce maximum units = Maximum number of units to be sold / 4

Hours Required to produce maximum units = 1,850 / 4

Hours Required to produce maximum units =463

Answer of Part 3:

For Product TLX

Units produced for most profitable sales mix = 2,040 *2
Units produced for most profitable sales mix = 4,080

Total contribution margin = 4,080 * $9.45
Total Contribution Margin = $38,556

For Product MTV

Units produced for most profitable sales mix = 360 *4

Units produced for most profitable sales mix = 1,440

Total contribution margin = 1,440 * $3.24

Total Contribution Margin = $4,666