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 $ 120 45 $ 75 0.4 hours 500 units Product B $ 150 90 $ 60 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 $7,500 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 $ 75.00 $ 60.00 0.41 1.0 Contribution margin per machine hour $ 187.50 $ 60.00 Product G Product B Total Maximum number of units to be sold 500 250 Hours required to produce maximum units 200 250 450 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 176 176 Units produced for most profitable sales mix 450 $ 75.00 Contribution margin per unit Total contribution margin-one shift $ 33,750 $ 33,750 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 200 152 Units produced for most profitable sales mix 500 152 352 Contribution margin per unit $ 75.00 $ 60.00 Total contribution margin-two shifts $ 37,500 $ 9,120 $ 46,620 33,750 Total contribution margin-one shift Change in contribution margin 4. Suppose that the company determines that it can increase Product G's maximum sales to 600 units per month by spending $6,500 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 240 112 352 Units produced for most profitable sales mix 600 112 Contribution margin per unit $ 75.00 $ 60.00 $ 45,000 $ 6,720 $ 51,720 46,620 5,100 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) Should the company pursue the marketing campaign? 6,500 7,500 (19,100) $ No
