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 $ 180 75 Selling price per unit Variable costs per unit Contribution margin per unit Machine hours to produce 1 unit Maximum unit sales per month Product B $ 210 126 $ 84 $ 105 0.4 hours 1.0 hours 600 units 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 $10,500 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 G Product B Contribution margin per unit Contribution margin per machine hour Total Product G 600 Product B 200 Maximum number of units to be sold Hours required to produce maximum units

Answer 1

Edgerron Company Requirement 1 Contribution margin per unit Machine hours per unit Contribution margin per machine hour Product G Product B 105 84 0.4 1 42 84 Product G Product B 600 200 240 200 Total Maximum number of units to be sold Hours required to produce maximum units 440 Requirement 2 Total 176 Hours dedicated to the production of each product Units produced for most profitable sales mix Contribution margin per unit Total contribution margin-one shift Product G Product B 176 440 105 46200 46200 Requirement 3 Total 352 Product G Product B 240 1 12 600 112 105 63000 9408 84 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 shift Change in contribution margin Change in fixed costs Change in operating income(loss) Should the company add another shift? 72408 46200 26208 10500 15708 Yes Requirement 4 Total 352 280 Product G Product B 72 700 72 105 84 73500 6048 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 Contribution margin-two shifts without marketing campaign Change in contribution margin Additional marketing costs Change in fixed costs Change in operating income(loss) Should the company pursue the marketing campaign? 79548 72408 7140 9500 10500 - 12860 No