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 Product B Selling price per unit Variable costs per unit $ 240 144 90 $120 Contribution margin per unit $ 96 Machine hours to produce 1 unit Maximum unit sales per month 0.4 hours 1.0 hours 250 units 650 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 $12,000 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.) 1. Determine the contribution margin per machine hour that each product generates Product G Product B 120.00 Contribution margin per unit 96.00 Machine hours per unit 1.0 Contribution margin per machine hour 300.00$ 96.00 Total Product G Product B 250 Maximum number of units to be sold 650 510 Hours required to produce maximum units 260 250 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? Total Product G Product B 176 176 Hours dedicated to the production of each product Units produced for most profitable sales mix 440 Contribution margin per unit 120.00 $ 0.00 Total contribution margin one shift 52,800 52,800 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? Total Product G Product B 260 Hours dedicated to the production of each product 92 352 650 Units produced for most profitable sales mix 92 Contribution margin per unit 120.00 $ 96.00 8,832 86,832 Total contribution margin two shifts 78,000 $ Total contribution margin one shift 52,800 Change in contribution margin (12,000) Change in fixed costs 74,832 Change in operating income(loss) 22,032 Should the company add another shift? 4. Suppose that the company determines that it can increase Product G's maximum sales to 700 units per month by spending $11,000 per month in marketing efforts. Should the company pursue this strategy and the double shift? Total Product G Product B Hours dedicated to the production of each product 280 72 352 Units produced for most profitable sales mix 700 72 Contribution margin per unit 120.00 $ 96.00 Total contribution margin two shifts and marketing campaign 84,000 $ 6,912 $ 90,912 86,832 Contribution margin two shifts without marketing campaign Change in contribution margin
