Edgerron Company is able to produce two products, G and B, with the same machine

Question

Edgerron Company is able to produce two products, G and B, with the same machine in its factory. The following information is available.

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 $9,500 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)

Product G Product B Selling price per unit $ 160 $ 190 Variable costs per unit 65 114 Contribution margin per unit $ 95 $ 76 Machine hours to produce 1 unit 0.4 hours 1.0 hours Maximum unit sales per month 550 units 200 units 1. Determine the contribution margin per machine hour that each product generates Product G Product B Contribution margin per unit Contribution margin per machine hour Product G Product B Total Maxim um number of units to be sold 550 200 Hours required to produce maximum units 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 3. If the company adds another shift, how many units of Product G and Product B should it produce? How much total contribution margin would 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 two shifts

Explanation / Answer

ans 1 product G Product B Total Contribution Margin per unit $95 $76 Machine hours to produce one unit A 0.4 1 Contribution Margin per machine hour $237.50 $76.00 Max. no of units to be sold B 550 200 Hours required A*B 220 200 420 ans 2 product G Product B Total Hours dedicated to the production of each product 176 176 Units produced for most profitable sales mix (176/.4) 440 Contribution margin per unit $95.00 Total contribution margin - one shift $41,800 $41,800 Max available hours 22*8 176 ans 3 ours dedicated to the production of each product 220 132 352 Units produced for most profitable sales mix 550 132 Contribution margin per unit $95 $76 Total contribution margin - two shifts $52,250 $10,032 $62,282 Total contribution margin - one shift $41,800 Change in CM 20,482 Change in Fixedc ost 9,500 Change in operating income $10,982 Another shift should be added Yes Max available hours 22*8*2 352 ans 4 Hours dedicated to the production of each product 240 112 352 Units produced for most profitable sales mix (600*.4) 600 112 Contribution margin per unit $95 $76 Total contribution margin - two shifts and marketing campaign $57,000 $8,512 $65,512 Total contribution margin - two shifts without marketing campaign $62,282 Change in CM 3,230 Additional fixed cost 8,500 Change in Fixedc ost 9,500 Change in operating income ($14,770) No marketing campaign should not be added If any doubt pleaser comment

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