Question

Edgerron Company is able to produce two products, G and B, with the same machine in its factory. The following information is available Product G $ 180 Product B $ 210 Selling price per unit Variable costs per unit Contribution margin per unit Machine hours to produce 1 unit Maximum unit sales per month $ 105 S 84 0.4 hours 550 units 1.9 hours 200 units The company presently operates the machine for a single eight-hour shift for 22 working days each month. Management is thinking about operating the machine for two shifts, which will increase its productivity by another eight hours per day for 22 days per month This change would require $10.500 additional fixed costs per month (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, es negative values.) Product B $ 1. Determine the contribution margin per machine hour that each product generates Product G Contribution margin per unit 105.00 Machine hours per unit Contribution margin per machine hour 26250 Product Maximum number of units to be sold 550 Hours required to produce maximam units 2201 $ 8400 Total Product B IS200 2 00 2. How many units of Product and Product should the company produce if it continues to operate with only one shift? How much to contribution margin oes this mix produce each month? Product Product B Hours dedicated to the production of each product 2201 200 Units produced for most ofta sam Contribution aginn 105.001s 400

Answer 1

1)

	Product G	Product B
Contribution margin per unit	105.00	84.00
Machine hours per unit	0.40	1.00
Contribution margin per machine hour	262.50	84.00
	Product G	Product B	Total
Maximum number of units to be sold	550.00	200.00
Hours required to produce maximum units	220.00	200.00	420.00

2)

	Product G	Product B	Total
Hours dedicated to the production of each product	176		176
Units produced for most profitable sales mix	440
Contribution margin per unit	$     105.00
Total contribution margin - one shift	$46,200.00		46,200.00

3)

	Product G	Product B	Total
Hours dedicated to the production of each product	220.00	132.00	352.00
Units produced for most profitable sales mix	550.00	132.00
Contribution margin per unit	105.00	84.00
Total contribution margin - two shifts	57,750.00	11,088.00	68,838.00
Total contribution margin - one shift			46,200.00
Change in contribution margin			22,638.00
Change in fixed costs			10,500.00
Change in operating income (loss)			12,138.00
Should the company add another shift?	Yes

4)

	Product G	Product B	Total
Hours dedicated to the production of each product	240.00	112.00	352.00
Units produced for most profitable sales mix	600.00	112.00
Contribution margin per unit	105.00	84.00
Total contribution margin - two shifts and marketing campaign	63,000.00	9,408.00	72,408.00
Contribution margin - two shifts without marketing campaign			68,838.00
Change in contribution margin			3,570.00
Additional marketing costs			9,500.00
Change in fixed costs			10,500.00
Change in operating income (loss)			-16,430.00
Should the company pursue the marketing campaign?	No