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 $11,500 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.) 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? Suppose that the company determines that it can increase Product G's maximum sales to 700 units per month by spending S10500 per month in marketing efforts. Should the company pursue this strategy and the double shift?

Explanation / Answer

1.

2.

Available hours on a single shift = 22 days x 8 hours = 176 hours.

3. Hours available on working second shift = 44 days x 8 hours = 352 hours

4.

Product G Product B Contribution margin per unit $115 $92 Hours per unit 0.40 1.00 Contribution per hour $287.50 $92 Product G Product B Total Maximum units to be sold 650 250 Hours required to produce maximum units 260 hours 250 hours 510 hours

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