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 Product G $ 190 80 Product B $ 220 132 Contribution margin per unit $ 110 $ 88 0 unit Machine hours to produce 1 unit Maximum unit sales per month 0.4 hours 550 units 1.0 hours 200 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 $11,000 additional fixed costs per month (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.) Product B 88 00 04 1. Determine the contribution margin per machine hour that each product generates Product Contribution margin per unit 110.00 Machine hours per unit Contribution margin per machine hour $ 4400 Product Maximum number of units to be sold Hours required to produce maximum units $ 88.00 Product B Total 2 How many units of Product G and Product B should the company produce if it continues to operate with only one shift? How much total contribution margin does this mix produce each month?

Answer 1

1.Calculation of Contribution Margin per Machine Hour:
	Product G	Product B
Contribution Margin per Unit (A)	110	88
Machine hours per unit (B)	0.4	1
Contribution Margin per Machine Hour (A/B)	275	88
	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	110	88
Total CM – One Shift	48,400	0	48,400
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	110	88
Total CM two shifts	60500	11616	72116
One shift			48,400
Change			23,716
Less: Additional Fixed Costs			11000
Change in Income			12,716
Incremental Income			12,716
Should the company add?	Yes
Hence, double shift should be done
4
	G	B	Total
With campaign
Units Produced	600	112
CM per Unit	110	88
TCM	66000	9856	75856
Additional fixed costs			11000
Additional marketing costs			10000
Incremental Income			54856
Change in Incremental Income			-6,260
Pursue strategy and double shift?	NO
Marketing expenditure should not be done.