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 4,000 production hours available. Contribution margin is $6 for product X and $5 for product Y. Calculate contribution margin per production hour. What is the most profitable sales mix for this Company?

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