Edgerron Company is able to produce two products, G and B, with the same machine
ID: 2500473 • 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 $7,000 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
If company is operating at single eight hour
Total No of available hour = 22*8 = 176
Total Hour required = 500*0.4 + 250*1 = 450
Contribution margin per unit, Product G = 70
Contribution margin per unit, Product B = 56
Contribution margin per hour , Product G = 70/0.4 = 175
Contribution margin per hour, Product B = 56/1 = 56
If the company is operating at normal than it should Produce: Product B
No of Unit its should produce with nomal hour = 176/0.4 = 440 Unit
Contribution Margin at best mix = 440*70
Contribution Margin at best mix = 30800
If the second shift started:
Than company should produce 500 unit of product G
and remaining for product B = (176- (500-440)*0.4)/1 = 152 Units
Net Operating Profit in two shift would increase = (Contribution margin of product G + Contribution margin of product B - Contribution Margin at single shift - discritionary fixed cost)
Net Operating Profit in two shift would increase = (500*70 + 152*56 - 30800 - 7000)
Net Operating Profit in two shift would increase = $ 5712
Answer
Net Operating Profit in two shift would increase = $ 5712
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