Problem 10-5A Analysis of sales mix strategies LO A1

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			$	200					$	230
Variable costs per unit				85						138
Contribution margin per unit			$	115					$	92
Machine hours to produce 1 unit		0.4	hours					1.0	hours
Maximum unit sales per month		650	units					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 $11,500 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)

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 S11,500 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values. Answer is not complete 1. Determine the contribution margin per machine hour that each product generates. Product G Product B 15.00 S 92.00V Contribution margin per unit 0.4M 1.0 Machine hours per unit 287.50 S 92.00V Contribution margin per machine hour Product G Product B Total Hours required to produce maximum units 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? Total Product G Product B 1zev 1re Hours dedicated to the production of each product Units produced for most profitable sales mix Contribution margin per unit 115.00 V s 0.00V 5 50600 Total contribution margin one shift 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 Hours dedicated to the production of each product Units produced for most profitable sales mix Contribution margin per unit 115.00 74750 Total contribution margin two shifts 4. Suppose that the company determines that it can increase Product G's maximum sales to 700 units per month by spending S10500 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 Units produced for most profitable sales mix Contribution margin per unit Total contribution margin two shifts and marketing campaign