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 $150 60 $ 90 0.4 hours 550 units Product B $ 180 108 $ 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.)

Answer 1

1) Determination of Contribution Margin per machine hour for each product Particulars Contribution margin per unit Machine hours need for each unit Contribution Margin per machine hour Maximum number of units to be sold Hours required to produce Maximum units ProductG Product B Total 90.00 0.40 225.00 550 220 72.00 1.00 72.00 200 200 750 420 2) Contribution Margin per machine hoor each product if it Operates single shift Particulars Hours dedicated to the production of each product Units produced for most profitable sales mix Contribution margin per unit Total contribution margin - one shift ProductG Product B Total 220 420 90.00 37,800 220 37,800 3) Contribution Margin per machine hour for each product if it Operates Double shift:- Particulars Hours dedicated to the production of each product Units produced for most profitable sales mix Contribution margin per unit Total contribution margin - two shifts Total contribution margin - one s Change in contribution margin Change in fixed cost Change in operating income(loss) Should the company add another shift ProductG Product B Total 220 550 90.00 49,500 132 132 72.00 9,504 352 59,004 37,800 21,204 9,000 12,204 Yes

4) Contribution Margin per machine horfor each product if it Operates Double shift: Particulars Hours dedicated to the production of each product Units produced for most profitable sales mix Contribution margin per unit Total contribution margin - two shifts and Marketing Campaign Total contribution margin - one shift Change in contribution margin Change in fixed cost and Marketing expenses Change in operating income(loss) Should the company pursue strategy and double shift Since lower income than the Adding another shift like above 3) ProductG Product B Total 240 600 90.00 54,000 112 112 72.00 8,064 352 62,064 37,800 24,264 17,000 7,264 0