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 $10,000 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 $ 170 $ 200 Variable costs per unit 70 120 Contribution margin per unit $ 100 $ 80 Machine hours to produce 1 unit 0.4 hours 1.0 hours Maximum unit sales per month 550 units 200 units

Explanation / Answer

1 product G product B Contribution margin per unit 100 80 machine hours per unit 0.4 1 contribution margin per machine hour 250 80 product G product B total Maximum number of units to be sold 550 200 hours required to produce maximum units 220 200 420 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 100 total contribution margin - one shift 44000 44,000 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 contribution margin per unit 100 80 total contribution margin-two shifts 55000 10560 65560 contribution margin -one shifts 44,000 change in contribution margin 21,560 change in fixed costs 10,000 change in operating income (loss) 11,560 should the company pursue marketing campaign yes 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 contribution margin per unit 100 80 total contribution margin-two shifts & marketing campaogn 60000 8960 68960 contribution margin -two shifts without marketing ca 65,560 change in contribution margin 3,400 Additional marketing costs 9,000 change in fixed costs 10,000 change in operating income (loss) -15,600 should the company pursue marketing campaign No

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