value: 1.53 points Edgerron Company is able to produce two products, G and B, wi

Question

value: 1.53 points Edgerron Company is able to produce two products, G and B, with the same machine in its factory. The following information is available. Selling price per unit Variable costs per unit 5 230 100 Product B 5 280 156 Contribution margin per unit 5 130 5 104 Machine hours to produce 1 unit Maximum unit sales per month 0.4 hours 650 units 1.0 hours 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 $13,000 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)

Explanation / Answer

Requirement 1: CONTRIBUTION MARGIN PER MACHINE HOUR PRODUCT G PRODUCT B Contribution Margin Per unit 130 104 Machine hours per unit 0.4 1 Contribution per machine hour 325 104 PRODUCT G PRODUCT B TOTAL Maximum Number of units to be sold 650 250 Hours Required to produce maximum units 260 250 510 Requirement2: Total hours available in Single Shift Daily Single 8-hours shift 8 hours per day Number of days in the month 22 days Number of machine hours per month 176 hours (22 days of 8 hours shift) As contribution per machne hour of Product G is higher. Therefore, Available hours of 176 hours is used in the production of ProductG Hours required per unit of Product G = 0.40 hour per unit Number of units produced from 176 hours(176/0.4) = 440 units TOTAL CONTRIBUTION EARNED IN SINGLE SHIFT PRODUCT G PRODUCT B TOTAL Hours dedicated to the productionof each product 176 hours 176 hours Units to be produced for most profitable sales mix 440 units 440 units Contribution per unit $ 130.00 per unit Total Contribution per Shift $57,200 $57,200 Requirement3 Total Machine hours available in Two shifts(176*2) = 352 hours Less: Maximum hours used in Product G =                    260 hours Hours used in Production of Product B =                          92 hours Number of units to be produced of both the product: Product G (260/0.4) 650 units Product B (92 /1) 92 units Total Contribution Margin in Two Shifts PRODUCT G PRODUCT B TOTAL Hours dedicated in production of each product 260 hours 92 hours 352 hours Units Produced in Most Profitable sales mix 650 units 92 units Contribution margin per unit 130 104 Total Contribution margin earned in Two Shifts 84500 9568 94068 Less: Additional Fixed expense 13,000 Net Operating Profits 81,068 Requirement4: Total Hours available in two shifts (176*2 shifts) 352 hours Less: hours required for production of 700 unts of Product G 280 hours (700 units @0.40 hour per unit) Hours available for Production of Product B 72 hours Hours required per unit of Product B 1 hours per unit Number of Units of Product B (72 hours /1) 72 units Total Contribution Margin in Two Shifts PRODUCT G PRODUCT B TOTAL Hours dedicated in production of each product 280 hours 72 hours 352 hours Units Produced in Most Profitable sales mix 700 units 72 units Contribution margin per unit 130 104 Total Contribution margin earned in Two Shifts 91000 7488 98488 Less: Additional Fixed expense 13,000 Less: Additional marketing cost 12,000 Net Operating Profits 73,488 No, Company must not incur additional marketing expense along with with Double shift.

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