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 $132 50 $ 82 0.4 hours 600 units Product B Selling price per unit Variable costs per unit Contribution margin per unit Machine hours to produce 1 unit Maximum unit sales per month $ 160 96 $ 64 1.0 hours 150 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 $8,000 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 $82.00 $64.00 Contribution margin per unit Machine hours per unit Contribution margin per machine hour 0.4 205.0001$ 64.000 Product G Product B Total Maximum number of units to be sold 600 150 Hours required to produce maximum units 240 150 390 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 440 $82.00 $64.00 36,080 $ 0 36,080 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 Total contribution margin one shift Change in contribution margin Change in fixed costs 600 112 82.00 $ 64.00 $ 49,200 |$ 7,168 |$ 56,368 36,080 8,000 $ 48,368 Should the company add another shift? Yes 4. Suppose that the company determines that it can increase Product G's maximum sales to 700 units per month by spending $7,000 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 700 82.00 S 72 64.00 $ 48,368 Should the company add another shift? Yes 4. Suppose that the company determines that it can increase Product G's maximum sales to 700 units per month by spending S7,000 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 Contribution margin - two shifts without marketing campaign Change in contribution margin Additional marketing costs Change in fixed costs Change in operating income(loss) 72 64.00 57,4004,608 700 82.00 62,008 56,368 8,000 7,000 47,008
