Check Problem 23-5A Analyzing sales mix strategies LO P3 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 $ 220 95 Product B $ 250 150 Selling price per unit Variable costs per unit Contribution margin per unit Machine hours to produce 1 unit Maximum unit sales per month $ 125 $ 100 0.4 hours 650 units 1.0 hours 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 $12,500 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.) Answer is not complete. 1. Determine the contribution margin per machine hour that each product generates. Product G Product B Contribution margin per unit 125.00$ 100.00 Machine hours per unit 0.4 1.0 Contribution margin per machine hour 312.50 $ 100.00 Product G Product B Maximum number of units to be sold 650 250 Total Hours required to produce maximum units 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 176 0 176 Units produced for most profitable sales mix 440 0 $ 125.00$ 0.00 Contribution margin per unit Total contribution margin-one shift $ 55,000 55,000 Total 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 Hours dedicated to the production of each product 260 92 352 Units produced for most profitable sales mix 650 92 Contribution margin per unit $ 125.00 $ 100.00 Total contribution margin-two shifts $ 81,250 $ 9,200 90,450 Total contribution margin-one shift 55,000 Change in contribution margin 35,450 Change in fixed costs 12,500 Change in operating income(loss) $ 22,950 Total incremental income $ 125,900 Should the company add another shift? Yes 4. Suppose the company determines that it can increase Product G's maximum sales to 700 units per month by spending $11,500 per month in marketing efforts. Should the company pursue this strategy and the double shift? Compute total incremental income. Product G Product B Total Second shift without marketing campaign: Units produced for most profitable sales mix Contribution margin per unit Contribution margin 0 $ 0 Second shift with marketing campaign: Units produced for most profitable sales mix Contribution margin per unit Contribution margin 0 $ 0 No
