In: Accounting
Colt Company owns a
machine that can produce two specialized products. Production time
for Product TLX is three units per hour and for Product MTV is four
units per hour. The machine’s capacity is 2,100 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 3,570 units of
Product TLX and 4,080 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 | $ | 14.00 | $ | 8.40 | ||||
Variable costs per unit | 4.20 | 5.04 | ||||||
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.)
|
Working |
Product TLX |
Product MTV |
||
A |
Contribution margin per unit |
$9.80 |
$3.36 |
|
B |
production hours per unit |
0.333333 |
0.250000 |
|
C = A/B |
Contribution margin per production hour |
$29.40 |
$13.44 |
|
Product TLX |
Product MTV |
Total |
||
D |
Maximum no. of units to be sold |
3,570 |
4,080 |
|
E = D x B |
Hours requied to produce maximum units |
1,190 |
1,020 |
2,210 |
Product TLX |
Product MTV |
Total |
||
F |
Hours dedicated to production of each product |
1,190 |
910 |
2,100 |
G = F/B |
Units produced for most profitable sales mix |
3,570 |
3,640 |
7,210 |
H = A |
Contribution margin per unit |
$9.80 |
$3.36 |
|
I = G x H |
Total Contribution margin |
$34,986.00 |
$12,230.40 |
$47,216.40 |
--Note
Working |
Product TLX |
Product MTV |
|
A |
Selling price per unit |
$14.00 |
$8.40 |
B |
Variable costs per unit |
$4.20 |
$5.04 |
C = A- B |
Contribution margin per unit |
$9.80 |
$3.36 |