Answered: Colt Company owns a machine that can…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 16E

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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 2,750
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 4,700 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. $ per unit Product TLX Product MTV
Selling price per unit . $15.00 $9.50
Variable costs per unit . 4.80 5.50

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