Edgerron Company is able to produce two products, G and B, with the same machine
ID: 2528548 • 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. Product G Product B Selling price per unit $ 50 $ 80 Variable costs per unit 10 48 Contribution margin per unit $ 40 $ 32 Machine hours to produce 1 unit 0.4 hours 1.0 hours Maximum unit sales per month 600 units 200 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 $4,000 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)
Explanation / Answer
Product G
Product B
Contribution margin per unit
Machine hours per unit
Contribution margin per machine hour
Product G
Product B
Maximum number of units to be sold
Hours required to produce maximum units
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?
Product G
Product B
Hours dedicated to the production of each product
176
176
Units produced for most profitable sales mix
440
Contribution margin per unit
40
Total contribution margin - one shift
$17,600
$17,600
3. 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?
Product G
Product B
Hours dedicated to the production of each product
240
112
352
Units produced for most profitable sales mix
600
112
Contribution margin per unit
$40
$32
Total contribution margin - two shifts
$24,000
$3,584
$27,584
Total contribution margin- one shift
$17,600
Change in contribution margin
$9,984
Change in fixed costs
$4,000
Change in operating income(loss)
$5,984
Should the company add another shift
YES
Product G
Product B
Contribution margin per unit
$40 $32Machine hours per unit
0.4hrs 1.0hrsContribution margin per machine hour
$100 $32Product G
Product B
TotalMaximum number of units to be sold
600 200Hours required to produce maximum units
240 200 440Related Questions
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