Edgerron Company is able to produce two products, G and B, with the same machine
ID: 2588791 • 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 Selling price per unit Variable costs per unit Contribution margin per unit Machine hours to pr duce 1 unit Maximum unit sales per month Product G 110 40 $ 70 0.4 hours 500 units Product B S 140 84 $ 56 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 $7,000 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.) 1. Determine the contribution margin per machine hour that each product generates Product CG Product EB Contribution margin per unit Machine hours per unit Contribution margin per machine hour 70.00 S 0.4 175.00 S 56.00 1.0 56.00 Product G Product B Total Maximum number of units to be sold 500 250 Hours required to produce maximum unitsExplanation / Answer
Answer:
1
Determine the contribution margin per machine hour that each product generates
Product G
Product B
Contribution margin per unit
$70.00
$56.00
Machine hours per unit
0.4
1
Contribution margin per machine hour
$175.00
$56.00
Product G
Product B
Total
Maximum number of units to be sold
500
250
Hours required to produce maximum units
200
250
450
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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
Total
Hours dedicated to the production of each product
(22*8)
176
176
Units produced for most profitable sales mix
450
Contribution margin per unit
$70.00
Total contribution margin - one shift(176/0.4)*70
30800
30800
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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
Total
Hours dedicated to the production of each product
200
152
352
Units produced for most profitable sales mix
500
152
Contribution margin per unit
$70.00
$56.00
Total contribution margin - two shifts
$35,000.00
$8,512.00
$43,512.00
Total contribution margin - one shifts
30800
Change in contribution margin
12,712
Change in Fixed cost
7,000
Change in Operating income (Loss)
$5,712
Should company add another Shift
yes
__________________________________________________
4
Suppose that the company determines that it can increase Product G’s maximum sales to 600 units per month by spending $6,000 per month in marketing efforts. Should the company pursue this strategy and the double shift?
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
70
56
Total contribution margin - two shifts and marketing campaign
42000
6272
48272
Total contribution margin - without marketing campaign
$43,512.00
Change in contribution margin
4,760
Change in Fixed cost
6,000
Change in Operating income (Loss)
($1,240)
Should company add another Shift
No
Product G
Product B
Contribution margin per unit
$70.00
$56.00
Machine hours per unit
0.4
1
Contribution margin per machine hour
$175.00
$56.00
Product G
Product B
Total
Maximum number of units to be sold
500
250
Hours required to produce maximum units
200
250
450
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