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 $8,000 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)

Product G Product B Selling price per unit $ 132 $ 160 Variable costs per unit 50 96 Contribution margin per unit $ 82 $ 64 Machine hours to produce 1 unit 0.4 hours 1.0 hours Maximum unit sales per month 600 units 150 units

Explanation / Answer

1 Product G Product B Contribution margin per unit 82 64 Machine hours per unit 0.4 1 Contribution margin per machine hour 205 64 Product G Product B Total Maximum number of units to be sold 600 150 Hours required to produce maximum units 240 150 390 2 Product G Product B Total Hours dedicated to the production of each product 176 176 Units produced for most profitable sales mix 440 Contribution margin per unit 82 Total contribution margin - one shift 36080 36080 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 82 64 Total contribution margin - two shifts 49200 7168 56368 Total contribution margin - one shift 36080 Change in contribution margin 20288 Change in fixed costs 8000 Change in operating income 12288 Should the company add another shift? Yes 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 82 64 Total contribution margin - two shifts and marketing campaign 57400 4608 62008 Contribution margin - two shifts without marketing campaign 56368 Change in contribution margin 5640 Additional marketing costs 7000 Change in fixed costs 8000 Change in operating income -9360 Should the company pursue the marketing campaign? No

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