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 2,300 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 3,910 units of Product TLX and 1,680 units of Product MTV. Selling prices and variable costs per unit to produce the products follow. $ per unit Product TLX Product MTV Selling price per unit $ 12.50 $ 7.50 Variable costs per unit 3.75 4.50 Determine the company's most profitable sales mix and the contribution margin that results from that sales mix. (Round per unit contribution margins to 2 decimal places.)

Answer 1

Solution

Optimum sales mix
Product TLX	3910
Product MTV	1380

.Contribution margin that results from sales mix= $38,352.50 or 38353

Working

	Product TLX	Product MTV
Contribution margin per unit	$               8.75	$               3.00
Production hour required per unit	0.50	0.25
Contribution margin per production hour	$            17.50	$             12.00
Rank	I	II

.

	Product TLX	Product MTV	Total
Maximum number of units to be sold	3910	1380
Hours required to produce maximum units	1,955.00	345.00	2,300.00

.

Contribution margin at most profitable sales mix
	Product TLX	Product MTV	Total
Units produced for most profitable sales mix	3910	1380
Contribution margin per unit	$               8.75	$               3.00
Total contribution margin	34,212.50	4,140.00	$               38,353