Answer:
1. Contribution Margin per production hour
Product X = $12, Product Y = $15
2. Allocate all production capacity to product Y to generate $60,000 contribution
Explanation:
Step 1: Calculate The Contribution margin Per Production Hour
Product X,
= Contribution Margin per unit = $6
Number of Unit Produced in 1 hour= 2
Contrbution Per 1 Hour = $6 x 2 = $12
Product Y,
= Contribution Margin per unit = $5
Number of Unit Produced per hour= 3 units
Contrbution Per Hour = $5 x 3 = $15
Step 2: Calculate the Most Profitable Sales Mix
Option 1: Allocate all production capacity to product x
Number of Hours available = 4000 hours
Total Contribution = Contribution on hourly basis x total number of hours
Total Contribution = 12 x 4000= $48,000
Option 2: Allocate all production capacity to product Y
Number of Hours available = 4000 hours
Total Contribution = Contribution on hourly basis x total number of hours
Total Contribution = 15 x 4000= $60,000
Option 3: Allocate 40% of Capacity to Product X
Hours of total hours for product X = 40% x 4000 = 1600
Hours of toal hours for Product Y = 60% x 4000= 2400
Contribution therefore:
X= 12 x 1600= $19,200
Y= 15 x 2400= $36,000
Total Mix= $55,200
Option 4: Allocate 24% of Capacity to Product Y
Hours of total hours for product X = 76% x 4000 = 3040
Hours of toal hours for Product Y = 24% x 4000= 960
Contribution therefore:
X= 12 x 3040= $36,480
Y= 15 x 960= $14,400
Total Mix= $50,880
The Most Profitable Sales Mix is to allocate all Capacity to Product Y to generate $60,000
