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 G $ 150 Product B $ 180 - 60 108 Selling price per unit Variable costs per unit Contribution margin per unit Machine hours to produce 1 unit Maximum unit sales per month $ 90 0.4 hours 550 units $ 72 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 $9,000 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 machine hour that each product generates. Product Contribution margin per unit Product B Contribution margin per machine hour Total Product G 550 Product B 200 Maximum number of units to be sold Hours required to produce maximum units 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? Product Product B Total Hours dedicated to the production of each product Units produced for most profitable sales mix Contribution margin per unit

Answer 1

1						product G	product B
	Contribution margin per unit					90	72
	machine hours per unit					0.4	1
	contribution margin per machine hour					225	72
						product G	product B	total
	Maximum number of units to be sold					550	200
	hours required to produce maximum units					220	200	420
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					90
	total contribution margin - one shift					39600		39,600
3)						product G	product B	total
	hours dedicated to the production of each product					220	132	352
	units produced for most profitable sales mix					550	132
	contribution margin per unit					90	72
	total contribution margin-two shifts					49500	9504	59004
	contribution margin -one shifts							39,600
	change in contribution margin							19,404
	change in fixed costs							9,000
	change in operating income (loss)							10,404
	should the company pursue marketing campaign					yes
4)						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					90	72
	total contribution margin-two shifts & marketing campaogn					54000	8064	62064
	contribution margin -two shifts without marketing ca							59,004
	change in contribution margin							3,060
	Additional marketing costs							8,000
	change in fixed costs							9,000
	change in operating income (loss)							-13,940
	should the company pursue marketing campaign					No