Question

Q R S T U A B C D E F G H 4 Problem C (26 points): 5 Statue Company is able to produce two products, a Fancy Statue and a Plain 6 Statue with the same machine in its factory. NOTE that only ONE Statue can be 7 manufactured at a time using this machine. The Company currently makes both 8 statues, but management is concerned that this strategy is not providing 9 maximum benefit. They are thinking of adding a second shift and have asked 10 you to figure out their best course of action. The following information is L M N O P Solution: Please place your answer and supporting calculations in the space below and either highlight your final answer or surround it with a border so that it can be easily identified by the grader. 1 Contribution Margin by Machine Hour for each Statue: 11 14 2 Units of each Statue that company should produce to maximize Contribution Margin, assuming only one production shift: 15 16 12 Statue Data: 13 Fancy Statue Plain Statue Selling price per unit $ 120.00 $ 84.00 Variable costs per unit 41.00 18.50 Contribution margin per unit $ 79.00 $ 65.50 17 Machine hours to produce ONE unit 1 hour .55 hour 18 Maximum customer demand for each 19 Statue per month (max they can sell) 380 365 20 21 The company presently operates the machine for a single eight-hour shift for 24 22 working days each month. Management is thinking about operating the 23 machine for two shifts, which will increase its productivity by another eight 24 hours per day for 24 days per month. This change would require $12,000 25 26 27 Required (NOTE--show all calculations for full credit): 28 1 Determine the contribution margin per machine hour that each product 29 generates. (4 points) 30 2 How many units of the Fancy Statue and the Plain Statue should the Problem A. Problem B. Problem C. Problem D. + 3 Total Contribution Margin resulting from solution to Item 2: 4 Units of each Statue that company should produce to maximize Contribution Margin, assuming TWO production shifts:

Answer 1

		Fancy statue	Plain statue
	Selling price	120	84
	Variable cost	41	18.5
	Contribution	79	65.5
	Machine hours to produce one unit	1	0.55
1	Contribution margin by machine hours	79	119.090909	Contribution/machine to produce 1 unit
	Availble machine hours		192	8*24
	hours require to produce plain statute		0.55
	Unit able to produce		349.09
	Market demand		365
2	So we produce only 349 units of plain statue when single shift is working
	Contribution per unit in plain statue		65.5
3	Total contribution		22865.45
	2 shift started
	Available machine hours		384	(8+8)*24
	demand of plain statue		365
	hours require to produce plain statue		200.75	365*.55
	Balance hours		183.25
4	Fancy statue produce		183.25	183.25*25
	Plain Statute produce		365
	Contribution per unit fancy		79
	Contribution per unit Plain		65.5
	Total Contribution		38384.25	(65.5*365)+(79*183.25)
	Expense require for 2nd shift		12000
5	Total Contribution margin resulting while 2nd shift introduced		26384.25
6	Yes the company should add 2nd shift as it Cleary shown that after intoducing 2 nd shift our total contribution increase by 3518 (26384-22865)
	if company introduce advertising campaing plain statue demand rise to 500 unit and fancy statue 400 unit
	Plain Statute produce		500
	hours require to produce plain statue		275	500*.55
	Available machine hours		384	(8+8)*24
	Balance hours		109
	Fancy statue produce		109	109*1
	Contribution per unit fancy		79
	Contribution per unit Plain		65.5
	Total Contribution		41361	(65.5*500)+(79*109)
	Expense require for 2nd shift		12000
	Advertisment expnse		7000
	Total Contribution margin resulting while 2nd shift introduced		22361
7	Company shoud not do advertising as it total contribution get down from 26384 to 22361.