Johanson Inc. is analyzing its sales mix to find out if it is maximizing its pro

Question

Johanson Inc. is analyzing its sales mix to find out if it is maximizing its profits. The company produces three similar items: Regular, Deluxe, and Luxury. All three of these products are made with the same equipment, but the machine hours available to make these products are limited.  Product line statistics are as follows:

                                                                            Regular         Deluxe            Luxury

Current production and sals (units)              125,000       185,000          130,000

Machine hours per unit                                    14                     10                     8

Selling price per unit                                      $45                 $55                 $65

Unit variable cost                                             $25               $29                  $32

Unit variable selling cost                               $10                $12                  $14

Determine whether the existing sales mix is the most profitable one possible.  If your answer is no, offer your suggestion to improve the sales mix.  Round answers to two decimal places.

Explanation / Answer

PARTICULARS REGULAR DELUXE LUXURY Selling Price per unit 45 55 65 Variable Costs 25 29 32 Variable Selling Costs 10 12 14 Contribution per unit (A) 10 14 19 Machine Hours per unit (B) 14 10 8 Contibution per machine hour (A/B) 0.714285714 1.4 2.375 Ranking 3 2 1 Sales ( C) 125000 185000 130000 Contribution total (A x C) 1250000 2590000 2470000 6310000 Calculation of Machine hours for production PARTICULARS Sales M. hours per unit Total M.Hrs REGULAR 125000 14 1750000 DELUXE 185000 10 1850000 LUXURY 130000 8 1040000 Total M.Hrs 4640000 Contribution from making only Luxury (4640000/8)x19 11020000

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