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. Product G Product B Selling price per unit $ 180 $ 210 Variable costs per unit 75 126 Contribution margin per unit $ 105 $ 84 Machine hours to produce 1 unit 0.4 hours 1.0 hours Maximum unit sales per month 550 units 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, as negative values.)

Explanation / Answer

Product G Product B Total Selling Price $180 $210 Variable Cost $75 $126 Contribution $105 $84 Hrs/unit 0.4 1 Contribution/hr 262.5 84 1 Product G Product B Total Maximum No of units to be sold 550 200 Hrs/unit 0.4 1 Hrs required to produce maximum unit 220 200 420 2 Product G Product B Total Contribution/hr 262.5 84 Ranking For production I II Hrs dedicated to produce each unit 176 0 Total availabe hrs = 22 day *8 hrs = 176 hrs units produced 440 units [176hrs/0.4 hr pu] 0 Contribution / unit 105 84 Total Contribution $46,200 0 $46,200 3 Additional Hrs Available = 22 day*8 hrs = 176 hrs Product G Product B Total Hrs dedicated to produce each unit 44 132 [required 220 hrs - 176 hrs used] [ 176 hrs available- 44 hrs used for G] units produced 110 132 [44 hrs/0.4 hr p.u] [176 hrs//1hr pu] Contribution / unit 105 84 Additional Contribution 11550 11088 22638 Existing Contribution $46,200 0 $46,200 Total Contribution $57,750 $11,088 $68,838 4 Ifproduction of G is increased to 600 unints Product G Product B Total Hrs dedicated to produce each unit 240 hrs 112 [600 units * 0.4 hr [176hrs*2shift - 240 hrs] units 600 112 Contribution / unit 105 84 Total Contribution 63000 9408 72408 Increase in Contribution [72408-68838] 3570 Additional Fixed Cost 10500 Net loss if 600 units of G produced -6930 Its better not to produce 600units of G Company should produce 550 units of G and 132 units of B

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