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 $15,000 additional fixed costs per month. (Round hours per unit answers to 1 decimal place.)

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

Explanation / Answer

1 calculation of contribution margin per machine that each machine generates product g product b a contribution margin per unit 80 70 b machine hours to produce 1 unit 0.4 1 contribution margin per machine hour a / b 200 70 calculation of hours required to produce maximum units product g product b total   a maximum units to be sold 600 200 b machine hours to produce 1 unit 0.4 1 hours required to produce maximum units a * b 240 200 440 2 calculation of total contribution margin of product mix of each month product g product b total   contribution margin per machine hour 200 70 based on the contribution margin per machine hour product g is having high contribution margin per machine hour , the company should allocate hours required to produce 600 units of product g first out of the available hours and the remaining to produce 200 units of product b ranking 1 2 total number of hours available 22 * 8 total number of hours available 176 hours required to produce maximum units 240 200 hours allocated to product g 176 since only 176 hour are available , then only product g can be produced number of units of product g to be produced with 176 hours 176 / 0.40 number of units of product g to be produced with 176 hours 440 hours allocated to the production of each product 176 0 units produced for most profitable sales mix 176 / 0.40 0 / 1 units produced for most profitable sales mix 440 0 contribution margin per unit 80 70 total contribution margin one shift 440 * 80 0 * 70 total contribution margin one shift 35200 0 35200 3 calculation of total contribution margin of product mix of each month product g product b total   contribution margin per machine hour 200 70 ranking 1 2 total number of hours available 22 * 8 * 2 total number of hours available 352 hours required to produce maximum units 240 200 hours allocated to product g 240 hours allocated to product b 352 - 240 112 units produced for most profitable sales mix 240 / 0.40 112/ 1 units produced for most profitable sales mix 600 112 contribution margin per unit 80 70 total contribution margin one shift 600 * 80 112 * 70 total contribution margin one shift 48000 7840 55840 fixed cost 15000 total profit 40840 4 calculation of total contribution margin of product mix of each month when product production is 700 units product g product b contribution margin per machine hour 137.5 44 ranking 1 2 total number of hours available 22 * 8 * 2 total number of hours available 352 maximum units to be sold 700 200 machine hours to produce 1 unit 0.4 1 hours required to produce maximum units a * b 280 200 hours allocated to product g 280 hours allocated to product b 352 - 240 72 352 - 280 units produced for most profitable sales mix 280 / 0.40 72 / 1 units produced for most profitable sales mix 700 72 contribution margin per unit 80 70 total contribution margin two shifts 700 * 80 72 * 70 total contribution margin two shifts 56000 5040 61040 fixed cost 15000 + 12000 fixed cost 27000 total profit 34040 decision total profit without this strategy is 40840 and total profit with this strategy is 34040 , since total profit is decreasing after pursuing the strategy the strategy should not pursue

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