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 $180 75 Product B 210 126 Contribution margin per unit $105 $ 84 Machine hours to produce 1 0.4 hours 1.0 hours unit Maximum unit sales per 550 units 200 units month 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 $10,500 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)

Explanation / Answer

Answer 1. Product G Product B Contribution Margin Per Unit                       105.00                          84.00 Machine Hours Per Unit                           0.40                            1.00 Contribution Margin Per Machine Hour                       262.50                          84.00 Product G Product B Total Maximum number of Units to be sold                             550                              200 Hours Required to produce maximum units                             220                              200                   420 Answer 2. Product G Product B Total Hours Dedicated to the production of Each product                             176                                 -                     176 Units produced for most profitable sales mix                             440                                 -   Contribition Margin per Unit                             105                                84 Total Contribution Margin - One Shift                       46,200                                 -               46,200 Answer 3. Product G Product B Total Hours Dedicated to the production of Each product                             220                              132                   352 Units produced for most profitable sales mix                             550                              132 Contribition Margin per Unit                             105                                84 Total Contribution Margin - Two Shift                       57,750                        11,088             68,838 Total Contribution Margin - One Shift             46,200 Change in Contribution Margin             22,638 Change in fixed costs             10,500 Change in operating income (loss)             12,138 Should the company add another shift Yes Answer 4. 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                   352 Contribition Margin per Unit                             105                                84 Total Contribution Margin - Two Shift & marketing campaign                       63,000                          9,408             72,408 Total Contribution Margin - Two Shift without marketing campaign             68,838 Change in Contribution Margin                3,570 Additional Marketing Costs                9,500 Change in fixed costs                       -   Change in operating income (loss)             (5,930) Should the company pursue the marketing campaign No

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