Problem 23-5A 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			$	132				$	160
Variable costs per unit				50					96
Contribution margin per unit			$	82				$	64
Machine hours to produce 1 unit		0.4	hours				1.0	hours
Maximum unit sales per month		600	units				150	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 $8,000 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
Contribution margin per unit
Contribution margin per machine hour
	Product G	Product B	Total
Maximum number of units to be sold	600	150
Hours required to produce maximum units
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
Units produced for most profitable sales mix
Contribution margin per unit
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?
	Product G	Product B	Total
Hours dedicated to the production of each product
Units produced for most profitable sales mix
Contribution margin per unit
Total contribution margin - two shifts
4. Suppose that the company determines that it can increase Product Gs maximum sales to 700 units per month by spending $7,000 per month in marketing efforts. Should the company pursue this strategy and the double shift?
	Product G	Product B	Total
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