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Edgerron Company is able to produce two products, G and B, with the same machine in its factory. The following information is available.

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 Product B
Selling price per unit     $ 200       $ 230    
Variable costs per unit       85         138    
Contribution margin per unit     $ 115       $ 92    
Machine hours to produce 1 unit   0.4 hours     1.0 hours    
Maximum unit sales per month   650 units     250 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 $11,500 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
Machine hours per unit
115.00 $
92.00
$
0.4
1.0
287.50 $
Contribution margin per machine hour
92.00
Total
Product G
Product B
Maximum number of units to be sold
Hours required to produce maximum units
650
250
260
250
510
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 G
Product B
Total
Hours dedicated to the production of each product
Units produced for most profitable sales mix
176
0
176
440
0
Contribution margin per unit
$
115.00
0.00
Total contribution margin - one shift
50,600
50,600
|3. If the company adds another shift, how many units of Product G and Product B should it produce? How much total
incremental income would this mix produce each month? Should the company add the new shift?
Product G
Product B
Total
Hours dedicated to the production of each product
260
92
352
Units produced for most profitable sales mix
650
92
Contribution margin per unit
Total contribution margin - two shifts
Total contribution margin - one shift
Change in contribution margin
$
115.00
92.00
74,750$
83,214
8,464
50,600
32,614
Change in fixed costs
Change in operating income(loss)
Total incremental income
Should the company add another shift?
11,500
21,114
Yes
4. Suppose the company determines that it can increase Product G's maximum sales to 700 units per month by spending
$10,500 per month in marketing efforts. Should the company pursue this strategy and the double shift? Compute total
incremental income
Total
Product G
Product B
Second shift without marketing campaign:
Units produced for most profitable sales mix
Contribution margin per unit
Contribution margin
0
Second shift with marketing campaign:
Units produced for most profitable sales mix
Contribution margin per unit
Contribution margin
Additional fixed costs
Additional marketing costs
Incremental income
72
92.00
6,624 $
87,124
11,500
10,500
No
GA

Sep 22 2020 Read more Less More

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