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 Selling price per unit Variable costs per unit Product G S 50 10 ProductB S 80 48 Contribution margin per unit S 40 S 32 Machine hours to produce 1 unit Maximum unit sales per month 0.4 hours 600 units 1.0 hours 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

1 Product G Product B Contribution margin Per Unit $40 $32 Machine Hours to Produce 1 Unit 0.4 1 Contribution margin Per Hour $100 $32 Product G Product B Total Maximum Number of Units to be Sold 600 200 Hours required to Produce maximum Units 240 200 440 2 Product G Product B Total Hours dedicated to the production of each product 176 0 176 units produced for most profitable sales mix 440 0 Contribution Margin Per unit $40 $32 Total Contribution Margin -One Shift $17,600 $0 $17,600 Note: Take the Product which have higher Contribution margin and less production hours take first           : Total Hours = 22 days @ 8 Hours = 176 Hours 3 Product G Product B Total 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 or Loss $5,984 Should the Company Add another Shift Yes Note: Total Hours = 22 Days @ 8 Hours *2 = 352 4 Product G Product B Total Hours dedicated to the production of each product 280 72 352 units produced for most profitable sales mix 700 72 Contribution Margin Per unit $40 $32 Total Contribution Margin -Two Shifts $28,000 $2,304 $30,304 Total Contribution Margin -One Shift $17,600 Change in Contribution Margin $12,704 Additional Marketing Cost $3,000 Change in Fixed Costs $4,000 Change in Operating Income or Loss $5,704 Should the Company Pursue the Marketing Compaign Yes

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