Question

QS 23-11 Selection of sales mix LO P3 Excel Memory Company can sell all units of computer memory X and Y that it can produce, but it has limited production capacity. It can produce two units of X per hour or three units of Y per hour, and it has 4,700 production hours available. Contribution margin is $6 for product X and $5 for product Y. 1. Calculate contribution margin per production hour. 2. What is the most profitable sales mix for this Company

Answer 1

Contribution margin per production hour

Product X = $12

Product Y = $15

Step-by-step explanation:

Part 1

Contribution margin per production hour

Contribution margin per production hour = Contribution ÷ Time to produce one product

Therefore,

Product X = $6 ÷ 0.5

= $12

Product Y = $5 ÷ 0.33

= $15

Part 2

The Demand Units of Product X and Product Y are missing so the calculation of profitable sales mix is impossible.

This mix would have been calculated by :

1. Manufacturing all the units of Product Y since Y has the highest contribution margin per production hour (demand for Y × hours required per unit)
2. With the remainder of hours out of 4,700 after producing all of Product Y demand, we would then produce Product X.