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 $ 240 105 $ 135 0.4 hours 650 units Product B $ 270 162 $ 108 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 $13,500 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 $ 240.00 $ 270.00 Variable costs 105.0 162.0 Contribution margin per machine hour $ 135.00 $ 108.00 Product G Product B Maximum number of units to be sold 650 250 Hours required to produce maximum units 280 250 Total 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 Product B T otal Hours dedicated to the production of each product 176 Units produced for most profitable sales mix 440 Contribution margin per unit $ 135.00 Total contribution margin-one shift $ 59,400 $ 59,400 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 Product B Total Hours dedicated to the production of each product 2801 9 2 Units produced for most profitable sales mix 650 92 Contribution margin per unit $ 240.00 $ 270.00 Total contribution margin-two shifts $ 158,000 $ 24,840 $ 180,840 Total contribution margin-one shift 59,400 Change in contribution margin 121.440 Change in fixed costs 13,500 Change in operating incomelloss) $ 107,940 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 700 units per month by spending $12,500 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 700 72 Contribution margin per unit $ 240.00 $ 270.00 Contribution margin $ 168,000 $ 19,440 Second shift with marketing campaign: Units produced for most profitable sales mix Contribution margin per unit Contribution margin $ 0 $ 0p
