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.

                    Product G           Product B
Selling price per unit          $110               $140        
Variable costs per unit       40              84        
        
Contribution margin per unit       $70              $56        
        
Machine hours to produce 1 unit   0.4 hours         1.0   hours        
Maximum unit sales per month   500units         250   units        


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.)

Explanation / Answer

Statement of Ranking

Statement of Cost Benefit

G B Contribution per unit $70 $56 No. of hours per unit 0.40 1.0 Contribution per hour $175 $56 Ranking I II

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