Question

Edgerron Company is able to produce two products, G and B, with the same machine in its factory. The following information is available. Product GProduct BSelling price per unit $90 $120 Variable costs per unit 30 72 Contribution margin per unit $60 $48 Machine hours to produce 1 unit0.4hours 1.0hours Maximum unit sales per month600units 200units

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 $6,000 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)

1. Determine the contribution margin per hour that each product generates for Product G and Product B.

CM per unit

Machine hours per unit

CM per machine hour

Max # of units to be sold

Hours required to produce max units

2. How many Units of product G and B should the company produce if it continues to operate w only one shift? How much total con margin does this mix produce each month?

Hours dedicated to the production of each product

Units produced for most profitable sales mix

Con margin per unit

Total con margin - one shift

3. If the company adds another shift, how many units of Product G and B should it produce? How much total contribution margin would this mix produce each month?

Hours dedicated to the production of each product

units produced for most profitable sales mix

total contribution margin - two shifts

4. Suppose that the company determines that it can increase product g's max sales to 700 units per month by spending $5,000 per month in marketing efforts. Should the company pursue this strategy and the double shift?

Hours dedicated to the production of each product

units produced for most profitable sales mix

con margin per unit

total con margin - two shifts and marketing campaign

Answer 1

1						product G	product B
	Contribution margin per unit					60	48
	machine hours per unit					0.4	1
	contribution margin per machine hour					150	48
						product G	product B	total
	Maximum number of units to be sold					600	200
	hours required to produce maximum units					240	200	440
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					60
	total contribution margin - one shift					26400		26,400
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					60	48
	total contribution margin-two shifts					36000	5376	41376
	contribution margin -one shifts							26,400
	change in contribution margin							14,976
	change in fixed costs							6,000
	change in operating income (loss)							8,976
	should the company pursue marketing campaign					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					60	48
	total contribution margin-two shifts & marketing campaogn					42000	3456	45456
	contribution margin -two shifts without marketing ca							41,376
	change in contribution margin							4,080
	Additional marketing costs							5,000
	change in fixed costs							6,000
	change in operating income (loss)							-6,920
	should the company pursue marketing campaign					No