Edgerron Company is able to produce two products, G and B, with the same machine
ID: 2492254 • 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 $12,500 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)
1. Determine contribution margin per machine hour that each product generates.
2. How many units of product G and product B should the company produce if it continues to operate with only one shift? How much total contribution margin does this mix produce each month?
3. If the compann adds another shift how many units of product G and product B should the company produce? How much total contribution margin does this mix produce each month?
4. Suppose that the company determines that it can increase product G's maximum sales to 700 units per month by spending $11500 in marketing efforts. Should the company pursue this strategy and the double shift?
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
Answer
Answer 1
Figures in $
Particulars
Product G
Product B
Contribution margin per unit
a
125
100
Machine hours to produce 1 unit
b
0.4
1
Contribution margin per machine hour
(a/b)
312.5
100
Answer 2
Here machine hour is scarce resource. So Product with higher contribution margin per machine hour will be given first preference for production. Here Product G has higher contribution margin per machine hour. So Production of Product G will be given first Preference.
Figures in $
Particulars
Amount
Total available hours
176
(22*8)
First preference (product G)
Maximum Hours required for Product G
260
(650 units * 0.4 hours)
Total maximum possible allocated hours for Product G
a
176
Contribution per machine hour for product G
b
312.5
Total contribution per month
(a*b)
55000
Answer 3
Figures in $
Particulars
Amount
Total available hours
352
(22*8)*2
First preference (product G)
Maximum Hours required for Product G
260
(650 units * 0.4 hours)
Second preference (Product B)
Maximum Hours required for Product B
250
(250 units * 1)
Hours allocated to Product G
a
260
Contribution per machine hour for product G
b
312.5
Total Contribution from Product G (a*b)
c
81250
Hours allocated to Product B
d
92
(352-260)
Contribution per machine hour for product B
e
100
Total Contribution from Product B (d*e)
f
9200
Total contribution margin (c+f)
90450
Answer 4
Figures in $
Particulars
Amount
Total available hours
352
(22*8)*2
First Preference (Product G)
Maximum Hours required for Product G
280
(700 units * 0.4 hours)
Second preference (Product B)
Maximum Hours required for Product B
250
(250 units * 1)
Hours allocated to Product G
a
280
Contribution per machine hour for product G
b
312.5
Total Contribution from Product G (a*b)
c
87500
additional Marketing costs
d
11500
Total Contribution after marketing costs from product G (c-d)
e
76000
Hours allocated to Product B
f
72
(352-280)
Contribution per machine hour for product B
g
100
Total Contribution from product B (f*g)
h
7200
Total Contribution (e+h)
83200
Answer : Suppose that the company determines that it can increase product G's maximum sales to 700 units per month by spending $11500 in marketing efforts. the company should not pursue this strategy and the double shift because total contribution margin for double shift is reducing with spending $11500 in marketing efforts to $ 83200 (Answer 4) from $ 90450 (Answer 3).
Figures in $
Particulars
Product G
Product B
Contribution margin per unit
a
125
100
Machine hours to produce 1 unit
b
0.4
1
Contribution margin per machine hour
(a/b)
312.5
100
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.