Question

Tel Systems manufactures 2 products TLA and BIT. TLA selling price is $20/unit and variable costs are $13/unit. BIT selling price is $22/unit and variable costs are $10/unit. TLA requires 2 machine hours and BIT 4 machine hours. Demand for TLA is 2,000 units and for BIT is 1,600 units. Tel Systems works 5,000 hours. What is the optimal sales mix?

a. 2,000 TLA and 250 BIT
b. 2,000 TLA and 1,250 BIT
c. 0 TLA and 1,250 BIT
d. 2,000 TLA and 0 BIT
e. not enough data to answer
f. 1,000 TLA and 1,000 BIT
g. 2,000 TLA and 1,600 BIT

Answer 1

To determine the optimal sales mix, we calculate the contribution margin per unit for each product and the machine hour requirement. Then, based on demand and production capacity, we find the optimal sales mix to be 2,000 TLA and 1,250 BIT.

Step-by-step explanation:

To determine the optimal sales mix, we need to calculate the contribution margin per unit for each product. The contribution margin per unit is the selling price minus the variable cost per unit. For TLA, the contribution margin per unit is $20 - $13 = $7. For BIT, the contribution margin per unit is $22 - $10 = $12.

Next, we calculate the machine hour requirement for each product. TLA requires 2 machine hours per unit and BIT requires 4 machine hours per unit.

Since Tel Systems works 5,000 hours, we can calculate the maximum number of units that can be produced for each product. For TLA, the maximum number of units is 5,000 hours / 2 machine hours = 2,500 units. For BIT, the maximum number of units is 5,000 hours / 4 machine hours = 1,250 units.

Based on the demand and the maximum number of units that can be produced, the optimal sales mix is 2,000 units of TLA and 1,250 units of BIT. So the correct answer is option b. 2,000 TLA and 1,250 BIT.