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 $5,000 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)

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

CONTRIBUTION MARGIN PER HOUR FOR PRODUCT G

= CONTRIBUTION PER UNIT / HOURS REQUIRED FOR PER UNIT

= $50 / 0.4

= $125

CONTRIBUTION MARGIN PER HOUR FOR PRODUCT B

= CONTRIBUTION PER UNIT / HOURS REQUIRED FOR PER UNIT

= $40 / 1.0

= $40

AS THE CONTRIBUTION FOR THE LIMITING FACTOR I;E MACHINE HOUR IS MORE FOR PRODUCT G, IT WILL BE GIVEN FIRST PRIORITY FOR PRODUCING ALL THE DEMANDED UNITS, AND THE REST MACHINE HOUR WILL BE ALLOCATED TO PRODUCT B FOR MAXIMISING THE PROFIT.

NUMBER OF HOURS AVAILABLE PER MONTH WITH 2 SHIFTS PER DAY

= 22DAYS * 16 HOURS

= 352 HOURS

TOTAL HOURS REQUIRED TO PRODUCE THE DEMANDED UNITS OF PRODUCT G

= 600 UNITS * 0.4 HOUR

= 240 HOURS

BALANCE HOURS LEFT

= 352 - 240

= 112 HOURS

NUBER OF UNITS CAN BE PRODUCED FOR PRODUCT B

= 112 HOURS / 1 HOUR

= 112 UNITS

TOTAL CONTRIBUTION MARGIN

PRODUCT G (600 * $50) = $30000

PRODUCT B (112 * $40) = $4480

TOTAL CONTRIBUTION MARGIN

PRODUCT G (600 * $50) = $30000

PRODUCT B (112 * $40) = $4480

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