Question

Edgerron Company is able to produce two products, G and B, with the
same machine in its factory. The following information is available.

dgerron Company is able to produce two products, G and B. with the sa ailable. Product G Product B Selling price per unit Variable costs per unit $150 $ 180 60 108 Contribution margin per unit $ 90 S 72 Machine hours to produce 1 unit Maximum unit sales per month 1.0 hours 200 units 0.4 hours 550 units he company presently operates the machine for a single eight-hour shif bout operating the machine for two shifts, which will increase its produc his change would require $9.000 additional fixed costs per month. (Rou operating losses, if any, as negative values.) tion marnin ner machine hour that each product generates

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 $9,000 additional fixed costs per month.
(Round hours per unit answers to 1 decimal place. Enter operating
losses, if any, as negative values.)

please help

Answer 1

1.Calculation of Contribution Margin per Machine Hour:

	Product G	Product B
Contribution Margin per Unit (A)	90	72
Machine hours per unit (B)	0.4	1.0
Contribution Margin per Machine Hour (A/B)	225	72

	Product G	Product B	Total
Maximum number of units	550	200
Hours required to produce maximum units	550*0.4 = 220	200*1 = 200	420

2. Since Contribution per hour is higher for G, it will be produced first

	G	B	Total
Hours dedicated	176	0	176
Units produced	440	0	440
Contribution Margin per Unit	90	72
Total CM – One Shift	39,600	0	39,600

3. Another shift

Total hours available now = 8*22*2 = 352

	G	B	Total
Hours dedicated	220	132
Units produced	550	132
CM per Unit	90	72
Total CM two shifts	49,500	9504	59004
One shift			39600
Change			19404
Less: Additional Fixed Costs			9000
Change in Income			10,404
Incremental Income			10,404
Should the company add?	Yes

Hence, double shift should be done

4.

	G	B	Total
Without campaign
Units Produced	550	132
CM per Unit	90	72
TCM	49,500	9504	59004
Additional fixed costs			9000
Incremental Income			50,004
With campaign
Units Produced	600	112
CM per Unit	90	72
TCM	54000	8064	62064
Additional fixed costs			9000
Additional marketing costs			8000
Incremental Income			45064
Change in Incremental Income			(4,940)
Pursue strategy and double shift?	NO

Marketing expenditure should not be done.