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Solution: Please place your answer and supporting calculations in the space below and either highlight your final answer or surround it with a border so that it can be easily identified by the grader. 4 Problem C (26 points): 5 Statue Company is able to produce two products, a Fancy Statue and a Plain Statue with 6 the same machine in its factory. NOTE that only ONE Statue can be manufactured at a time 7 using this machine. The Company currently makes both statues, but management is B concerned that this strategy is not providing maximum benefit. They are thinking of adding 9 a second shift and have asked you to figure out their best course of action. The following -information is available: 1 Contribution Margin by Machine Hour for each Statue: -2 EasyBake Data: Fancy Statue $ 120.00 41.50 78.50 1 hour Selling price per unit Variable costs per unit Contribution margin per unit Machine hours to produce ONE unit Maximum customer demand for each Statue per month (max they can sell) 2 Units of each Statue that company should produce to maximize Contribution Margin, assuming only one production shift: Plain Statue $ 82.00 18.50 $ 63.50 .6 hour 9 380 365 3 Total Contribution Margin resulting from solution to Item 2: 1 The company presently operates the machine for a single eight-hour shift for 26 working 2 days each month. Management is thinking about operating the machine for two shifts, 3 which will increase its productivity by another eight hours per day for 26 days per month. -4 This change would require $13,000 additional fixed costs per month 4 Units of each Statue that company should produce to maximize Contribution Margin, assuming TWO production shifts: 5 Total Contribution Margin resulting from solution to Item 4: 7 Required (NOTE--show all calculations for full credit): 18 1 Determine the contribution margin per machine hour that each product generates. (4 9 points) 10 2 How many units of the Fancy Statue and the Plain Statue should the company produce 11 to achieve the maximum CM if it continues to operate with only one shift? Assume all 12 Statues produced are sold. (4 points) 13 3 How much total contribution margin does this sales mix produce cach month? (4 14 points) 15 4 If the company adds another shift, how many units of the Fancy Statue and the Plain 16 Statue should it produce to achieve the maximum CM? (3 points) 37 5 B How much total contribution margin would this mix produce each month? (3 points) 19 6 Should the company add the new shift? Why or why not? (3 points) 10 7 Suppose that, based on market research, the company determines that it can increase 11 the Fancy Statue's maximum sales to 400 units and increase the Plain Statue's maximum 12 sales to 500 units per month by spending $7,500 per month in marketing efforts. Should the company pursue this strategy and the double shift? Provide support for 6 Should the company add the second shift? Why or why not? 15 NOTE that this problem is NOT asking you to calculate Break-Even. Check Figures: Item 4: Fancy Statues = 197 Units. Item 7: Plain Statues Contribution Margin = $31,750 7 Should the company add the advertising campaign and the second shift? Why or why not? Show all relevant calculations. ON