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 Contribution margin per unit Machine hours to produce 1 unit Maximum unit sales per month Product G $210 90 $ 120 0.4 hours 650 units Product B $ 240 144 $ 96 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 $12,000 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)

Explanation / Answer

1 Product G Product B Contribution margin per unit 120 96 Machine hours per unit 0.4 1 Contribution margin per machine hour 300 96 Product G Product B Total Maximum number of units to be sold 650 250 Hours required to produce maximum units 260 250 510 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 120 Total contribution margin - one shift 52800 52800 3 Product G Product B Total Hours dedicated to the production of each product 260 92 352 Units produced for most profitable sales mix 650 92 Contribution margin per unit 120 96 Total contribution margin - two shifts 78000 8832 86832 Total contribution margin - one shift 52800 Change in contribution margin 34,032 Change in fixed costs 12,000 Change in operating income 22,032 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 120 96 Total contribution margin - two shifts and marketing campaign 84000 6912 90912 Contribution margin - two shifts without marketing campaign 86832 Change in contribution margin 4,080 Additional marketing costs 11,000 Change in fixed costs 12,000 Change in operating income -18,920 Should the company pursue the marketing campaign? No

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