1. Red Rock Enterprises is analyzing its sales mix to find out if it is maximizi

Question

1. Red Rock Enterprises is analyzing its sales mix to find out if it is maximizing its profits. The produces three similar items: Alpha, Beta, and Gamma. All three of these products are made with the same equipment, and maximum productive capacity measured in machine hours is now being used. Product line statistics are as follows Current production and sales (units) Machine hours per unit Selling price per unit Unit variable cost Alpha Bet 105,000 158,000 10 $63.00 $33.00 S20.00 95,000 13 $84.00 $49.00 $19.00 $48.00 $26.00 $16.00 nit variable selling cost Part 1 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

Since all the three products are similar and gamma gives the maximum contribution, it is suggested to producce only gamma to gain more profits.

Part 1: Determination of the most profitable Sales Mix: Alpha Beta Gamma A Selling Price per unit 63 48 84 B Unit Variable Cost 33 26 49 C Unit Variable Selling Cost 20 16 19 D Unit Total Variable Cost (B+C) 53 42 68 E Contribution Margin Per Unit (A-D) 10 6 16 F Units Sold 105000 158000 95000 G Total Contribution Margin (E*F) 1050000 948000 1520000 H Suggested Sales Mix 358000 I Total Contribution Margin (E*H) 5728000

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