1. 2.

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 $ 180 108 60 Selling price per unit Variable costs per unit Contribution margin per unit Machine hours to produce 1 unit Maximum unit sales per month $ 90 $ 72 0.4 hours 550 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 $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 G Product B Contribution margin per unit 176.00 $ 0.00 Machine hours per unit 440.0 Contribution margin per machine hour $ 90.00 Product G Product B Total Maximum number of units to be sold 550 200 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 G Product B Total Hours dedicated to the production of each product Units produced for most profitable sales mix Contribution margin per unit Total contribution margin - one shift 3. If the company adds another shift, how many units of Product G and Product B should it produce? How much total contribution margin would 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 Contribution margin per unit Total contribution margin - two shifts 4. Suppose that the company determines that it can increase Product G's maximum sales to 600 units per month by spending $8,000 per month in marketing efforts. Should the company pursue this strategy and the double shift? Product G Product B Total 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 Elegant Decor Company's management is trying to decide whether to eliminate Department 200, which has produced losses or low profits for several years. The company's 2017 departmental income statements shows the following. Dept. 200 $289,000 208,000 81,000 Combined $725,000 469,000 256,000 ELEGANT DECOR COMPANY Departmental Income Statements For Year Ended December 31, 2017 Dept. 100 Sales $436,000 Cost of goods sold 261,000 Gross profit 175,000 Operating expenses Direct expenses Advertising 15,000 Store supplies used 5,000 Depreciation-Store equipment 4,00 Total direct expenses 24,000 Allocated expenses Sales salaries 78,000 Rent expense 9,440 Bad debts expense 9,900 Office salary 15,600 Insurance expense 2,100 Miscellaneous office expenses 2,100 Total allocated expenses 117,140 Total expenses 141,140 Net income (loss) $ 33,860 11,000 4,400 2,900 18,300 26,000 9,400 6,900 42,300 46,800 4,780 7,900 10,400 1,300 1,400 72,580 90,880 $ (9,880) 124,800 14,220 17,800 26,000 3,400 3,500 189,720 232,020 $ 23,980 In analyzing whether to eliminate Department 200, management considers the following: a. The company has one office worker who earns $500 per week, or $26,000 per year, and four sales clerks who each earn $600 per week, or $31,200 per year for each salesclerk. b. The full salaries of two salesclerks are charged to Department 100. The full salary of one salesclerk is charged to Department 200. The salary of the fourth clerk, who works half-time in both departments, is divided evenly between the two departments. C. Eliminating Department 200 would avoid the sales salaries and the office salary currently allocated to it. However, management prefers another plan. Two salesclerks have indicated that they will be quitting soon. Management believes that their work can be done by the other two clerks if the one office worker works in sales half-time. Eliminating Department 200 will allow this shift of duties. If this change is implemented, half the office worker's salary would be reported as sales salaries and half would be reported as office salary. d. The store building is rented under a long-term lease that cannot be changed. Therefore, Department 100 will use the space and equipment currently used by Department 200. e. Closing Department 200 will eliminate its expenses for advertising, bad debts, and store supplies; 66% of the insurance expense allocated to it to cover its merchandise inventory; and 25% of the miscellaneous office expenses presently allocated to it. Required: 1. Complete the following report showing total expenses, expenses that would be eliminated by closing Department 200 and the expenses that would continue. The statement should reflect the reassignment of the office worker to one-half time as salesclerk. ELEGANT DECOR COMPANY Analysis of Expenses under Elimination of Department 200 Total Eliminated Continuing Expenses Expenses Expenses Direct expenses Allocated expenses Total expenses $ 0 $ 0 0