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 $ 160 Product B $ 190 Selling price per unit Variable costs per unit Contribution margin per unit Machine hours to produce 1 unit Maximum unit sales per month 0.4 hours 550 units 1.0 hours 200 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 $9,500 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.) Answer is comnlete hut not entirely correct. Answer is complete but not entirely correct. 1. Determine the contribution margin per machine hour that each product generates. Product Contribution margin per unit S 95.00 Machine hours per unit 0.40 Contribution margin per machine hour $ 237.50 Product G Maximum number of units to be sold 550 Hours required to produce maximum units 220 Product B 76.00 1.0 $ 76,00 Product B 2 00 200 Total 420 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 1760 176 Units produced for most profitable sales mix 440 0 Contribution margin per unit 95.00 S 0.00 Total contribution margin-one shift 41,800 41,800 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 Hours dedicated to the production of each product 220 132 352 Units produced for most profitable sales mix 550 132 Contribution margin per unit $ 95.00 $ 76.00 Total contribution margin-two shifts 52,250 $ 10,032 $ 62,282 Total contribution margin-one shift 41,800 Change in contribution margin 20,482 Change in fixed costs 9,500 Change in operating income(loss) 10,982 Total incremental income $ 63,118 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 $8,500 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 550 132 Contribution margin per unit 95.00 $ 76.00 Contribution margin 52,250 $ 10,032 $ 62,282 Additional fixed costs $ 9,500 Incremental income $ 52,782 112 600 95.00 57,000 $ $ 76.00 8,512 $ Second shift with marketing campaign Units produced for most profitable sales mix Contribution margin per unit Contribution margin Additional fixed costs Additional marketing costs Incremental income Change in incremental income Should the company pursue this strategy and the double shift? $ $ $ $ $ 65,512 9,500 8,500 47,512 18,000 % No
