Sung Company is able to produce two products, R and T, with the same machine in

Question

Sung Company is able to produce two products, R and T, with the same machine in its factory. The follow- ing information is available. Problem 25-5B Analysis of sales mix strategies A1 Product T Selling price per unit Variable costs per unit Contribution margin per unit Product R $60 20 540 $80 45 $35 1.0 hours Machine hours to produce 1 unit 0.4 hours Maximum unit sales per month 50 units 175 units The company presently operates the machine for a single eight-hour shift for 22 workin Management is thin g days each month. king about operating the machine for two shifts, which will increase its productivity eight hours per day for 22 days per month. This change would require $3,250 additional fixed costs per month.

Explanation / Answer

1.

2. Total hours available=22×8=176

Since contribution of R is higher per unit of constraint material, it will be produced to maximum.

R units=176hrs/ 0.4 hr p.u= 440 units

Total contribution= 176 hrs× $100 per hour=$17600

3. In case of double shift, hours available=352 hrs

Since contribution in double shift is more than single shift, company should work double shift.

4. If marketing expenses are incurred and works double shift

Total net contribution: $22120

Since contribution in case 4 has fallen from $23370 to $22120 incurring marketing expenses by working double shift is not advisable.

Do give your feedback!! Happy Learning :)

R T Selling Price $60 $80 Variable cost 20 45 Contribution per unit $40 $35 Machine hr p.u 0.4 1 Contribution per hr $100 $35

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