Colt Company owns a machine that can produce two specialized products. Productio
ID: 2461392 • Letter: C
Question
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 2.300 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 4.478 units of Product MTV. Selling prices and variable costs per unit to produce the products follow. Determine the company's most profitable sales mix and the contribution margin that results from that sales mix.Explanation / Answer
Product TLX Product MTV Selling Price per unit 14.5 8.7 Variable cost per unit 4.35 5.22 Contribution per unit 10.15 3.48 Ans In one hour production is 3 4 Contibution per hour 30.45 13.92 Ans Product TLX Product MTV Total Maximum no. of units to be sold 3910 4478 8388 In one hour production is 3 4 Hours required to produce max. units 1303.33 1119.5 2422.83 Contribution per hour is greater in TLX so first company should produce all TLX units and the hours left will be used in production of Product MTV Hours dedicated to production of each product 1303.33 996.67 2300 Units produced for most profitable sales mix 3910.0 3987 7897 rounded off Contribution margin per unit 10.15 3.48 13.63 Total contribution margin 39686.40 13873.65 53560