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 Contribution margin per unit Machine hours to produce 1 unit Maximum unit sales per month Product G $ 140 55 $ 85 Product B $ 170 102 $ 68 0.4 hours 500 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 $8.500 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 ſ Product Product B . Total 500 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 shit? How much total contribution margin does this mix produce each month? Product Product B Total

Answer 1

Part-1
	Product G	Product B
Contribution margin per unit	85	68
Machine hours per unit	0.4	1
Contribution margin per machine hour	$212.50	$68.00
	Product G	Product B	Total
Maximum number of units be sold	500	200
Hour Require per unit	0.4 Hour	1 Hour
Hours required produce maximum units	200	200	400
Part-2
	Product G	Product B	Total
Hours dedicated the production of each product (22 Days X 8 Hour)	176		176
Units produced for most profitable sales mix (176 Hour/ 0.4 Hour/ Unit)	440
Contribution margin per unit	$212.50
Total contribution margin - one shift (440X 105)	$93,500.00		$93,500.00
Part-3
	Product G	Product B	Total
Hours dedicated the production of each product ( Maximum Hour can be utilised for Producct G : 500 Unit X 0.40), Remaining for Product B	200	152	352
Units produced for most profitable sales mix (a)	500	152
Contribution margin per unit (b)	$212.50	$68.00
Total contribution margin - two shifts (axb)	$106,250	$10,336	$116,586
Less: Hours dedicated the production of each product, if contrine operate in One Shift			$93,500
			$23,086
Less: Change in fixed costs			$8,500
Change in operating income(loss)			$14,586
Should the company add another shift?	Yes
Part-4
	Product G	Product B	Total
Hours dedicated the production of each product (Hour can be utilised for Producct G : 600 Unit X 0.40), Remaining for Product B	240	112	352
Units produced for most profitable sales mix (a)	600	112
Contribution margin per unit (b)	$213	$68
Total contribution margin - two shifts and marketing campaign (aXb)	$127,500	$7,616	$135,116
Less: Contribution margin - two shifts without marketing campaign			$116,586
Change in contribution margin			$18,530
Less: Additional marketing costs			$7,500
Lless: Change in fixed costs			$8,500
Change in operating income(loss)			$2,530