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.

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 $5,500 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)

Edgerron Company is able to produce two products, G and B, with the same machine in its factory. The following information is available.

Explanation / Answer

1 Determine the contribution margin per machine hour that each product generates Product G Product B Contribution per unit 55 44 machine hours per unit 0.40 hrs 1 Hrs Contribution Per Machine hour $137.50 $44 55/0.40 44/1 Ranking base on Contribution machine hrs I II Demand per month 600 Unit 200 Units Total Hours reuired (Units * Hours per unit 240 hrs 200 hrs 600*0.40 200*1 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 required for production 240 200 440 Allocation of 176 hrs under 1 shift 176 0 176 (22 days *8hrs =176 hrs Hours reuired per unit 0.4 1 Number units Produced =176/0.40) 440 0 Contribution per unit $55 Total contribution margin In One shift (440*$55) $24200 3 if the Operates I Two Shifts , number of units produced and total contribution Product G Product B Total Hours required for production 240 200 440 Allocation of 352 hrs under 1 shift 240 112 352 (22 days *8hrs *2=352 hrs Hours reuired per unit 0.4 1 Number units Produced =(600/0.40) , 112/1 600 112 Contribution per unit $55 $44 Total contribution margin in Two shifts $33000 $4928 $37928 ($55*600) ($44*112) Less: Additional Fixed cost for Second Shift $5500 Contribution maring if Two shifts Opted $32428 4 if the Sale of product G increse to 700 units and it operates in two Shifts then Calculation of Net Income Product G Product B Total Hours required for production 280 200 480 700*0.40 Allocation of 352 hrs under 1 shift 280 72 352 (22 days *8hrs *2=352 hrs Hours reuired per unit 0.4 1 Number units Produced =(280/0.40) , 72/1 700 72 Contribution per unit $55 $44 Total contribution margin in Two shifts $38500 $3168 $41668 ($55*700) ($44*72) Less: Additional Fixed cost for Second Shift $5500 Contribution margin if two Shifts and 700 Units of G $36168 Contribution if One shift $24200 Contribution if TWo shifts $32428 Contribution if two shifts and 700 units of G $36168 Yes , it is advisable to Operate the machine in two shifts , because ot increses Contribution per Month

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