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Q9E

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Financial & Managerial Accounting
Found in: Page 1053
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

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 2,750hours 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 4,700 units of Product TLX and 2,500 units of Product MTV. Selling prices and variable costs per unit to produce the products follow. Determine (1) the company’s most profitable sales mix and (2) the contribution margin that results from that sales mix.

$s per unit Product TLX Product MTV

Selling price per unit . $15.00 $9.50

Variable costs per unit 4.80 5.50

The contribution margin results from that sales mix are $55,940.

See the step by step solution

Step by Step Solution

Step 1: Definition of sales mix

The sales mix means the situation where the company produces more than one type of product

Step 2: Calculation of maximum sales mix

Product TLX

Product MTV

Selling Price Per Unit

$15

$9.50

Less: Variable Cost Per Unit

$4.80

$5.50

Contribution Per Unit

$10.20

$4

Particulars

Product TLX

Product MTV

Maximum Product to Manufacture

4,700

2,500

Available Hours

2,750

Units Manufactured Per Hour

2

5

No. of Units Manufactured

4,700

2,000

Hours Utilised

2,350 hr

400 hr

The most profitable sales mix is to manufacture 4,700 units of TLX and 2,000 units of product MTV.

Product TLX

Product MTV

Total

Sale Price Per Unit

$15

$9.50

Variable Cost Per Unit

$4.80

$5.50

Contribution Cost Per Unit

$10.20

$4

Units Sold

4,700

2,000

Total Contribution

$47,940

$8,000

$55,940

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