Colt Company owns a machine that can produce two specialized products. Productio

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 five 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 2,120 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. (Round cost per unit answers to 2 decimal places.)

$s per unit Product TLX Product MTV Selling price per unit $ 13.00 $ 7.80 Variable costs per unit 3.90 4.68

Explanation / Answer

Product TLX Product MTV Contribution margin per unit 9.10 3.12 Labour hour per unit 0.50 0.20 Contribution margin per production hour 18.2 15.6 Product TLX Product MTV Total Maximum number of units to be sold 4,080 2,120 Hours required to produce maximum units 4080*.50 = 2040 2120*.20 = 424 For Most Profitable Sales Mix Product TLX Product MTV Total Hours dedicated to the production of each product 2040 360 Units produced for most profitable sales mix 4080 1800 Contribution margin per unit 9.1 3.12 Total contribution margin 37128 5616 42744

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