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 $ 110 40 $ 70 0.4 hours Soo units Product B $ 140 84 $ 56 1.0 hours 250 unita 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 $7,000 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 Contribution margin per unit Machine hours per unit Contribution margin per machine hour Product G Product B 70.00 $ 56.00 0.4 1.0 $ 175.00 $ 56.00 Product G Product B 500 250 200 250 Total Maximum number of units to be sold Hours required to produce maximum units 450 176 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 Units produced for most profitable sales mix Contribution margin per unit 70.00 Total contribution margin-one shift $ 30,800 30,800 440 $ 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 200 152 352 Units produced for most profitable sales mix 500 152 Contribution margin per unit $ 70.00 $ 56.00 Total contribution margin-two shifts $ 35,000 $ 8,512 $ 43,512 Total contribution margin-one shift 30,800 Change in contribution margin 12.712 Change in fixed costs 7,000 Change in operating incomelloss) $ 5.712 Total incremental income Should the company add another shift? Yes 4. Suppose the company determines that it can increase Product G's maximum sales to 600 units per month by spending $6,000 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 500 152 Contribution margin per unit $ 70.00 $ 56.00 Contribution margin $ 35,000 $ 8,512 $ 43,512 Additional fixed costs 7,000 Incremental income 36,512 $ $ 600 Second shift with marketing campaign: Units produced for most profitable sales mix Contribution margin per unit Contribution margin $ 70.00 42,000 $ $ o $ 7,000 6,000 $ Additional marketing costs Incremental income No
