Edgerron Company is able to produce two products, G and B, with the same machine
ID: 2477255 • Letter: E
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 $8,500 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 $ 140 $ 170 Variable costs per unit 55 102 Contribution margin per unit $ 85 $ 68 Machine hours to produce 1 unit 0.4 hours 1.0 hours Maximum unit sales per month 500 units 200 unitsExplanation / Answer
1. SUPPOSE IT PRODUCES IN TWO SHIFTS (I.E 22 DAYS X 8 HOURS X 2 SHIFTS = 352 HOURS)
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Product - G Product B Sales (880 units x $140 per unit) 123,200 352 units x $170 p.u = 59,840
Less: Variable cost (880 x 55) 19,360 352 x 102 = 35,904
Contribution Margin 103,840 23,936
Contribution margin per unit (103840/880) 118 23,936/352 68
Machine hours per unit (880/352) 2.5 352/352 1
Contribution margin per machine hour ( 103,840/352) 295 23,936/352 68
d. Sales value (b x c) 61,600 29,920
e. Variable Cost per unit 55 102
f. Total variable cost (b x e) 24,200 17,952
g. Contribution Margin(d - f) 37,400 11,968
h. Contribution margin per unit (g/b) 85 68
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