Question

Edgerron Company is able to produce two products, G and B, with the same machine in its factory. The following information is available. Selling price per unit Variable costs per unit Contribution margin per unit Machine hours to produce 1 unit Maximum unit sales per month Product G $ 80 25 $ 55 0.4 hours 600 units Product B $ 110 66 $ 44 1.0 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 $5,500 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.) Product B 1. Determine the contribution margin per machine hour that each product generates. Product G Contribution margin per unit Machine hours per unit Contribution margin per machine hour Product G Maximum number of units to be sold 600 Hours required to produce maximum units Product B Total 200 2. How many units of Product G and Product B should the company produce if it continues to operate with only one shift? How much total contribution margin does this mix produce each month? Product G Product B Total Hours dedicated to the production of each product Units produced for most profitable sales mix Contribution margin per unit Total contribution margin-one shift

Answer 1

Ques 1
	Product G	Product B
Contribution margin per unit	$        55.00	$      44.00
Machine hours per unit	0.4	1
Contribution margin per machine hour	$      137.50	$      44.00
	Product G	Product B	Total
Maximum number of units to be sold	600	200
Hours required to produce maximum units	240	200	440
Ques 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	$        55.00
Total contribution margin - one shift	$24,200.00		$24,200.00
Ques 3
	Product G	Product B	Total
Hours dedicated to the production of each product	240	112	352
Units produced for most profitable sales mix	600	112
Contribution margin per unit	$        55.00	$      44.00
Total contribution margin - two shifts	$33,000.00	$4,928.00	$37,928.00
Total contribution margin - one shift			$24,200.00
Change in contribution margin			$13,728.00
Change in fixed costs			$   5,500.00
Change in operating income (loss)			$   8,228.00
Should the company add another shift?	Yes
Ques 4
	Product G	Product B	Total
Hours dedicated to the production of each product	280	72	352
Units produced for most profitable sales mix	700	72
Contribution margin per unit	$        55.00	$      44.00
Total contribution margin - two shifts and marketing campaign	$38,500.00	$3,168.00	$      41,668
Contribution margin - two shifts without marketing campaign			$      37,928
Change in contribution margin			$        3,740
Additional marketing costs			$        4,500
Change in fixed costs			$        5,500
Change in operating income (loss)			$       (6,260)
Should the company pursue the marketing campaign?	No