Problem 25-5A Analyzing sales mix strategies LO P3 Edgerron Company is able to produce two products, G and B, with the same machine in its factory. The following information is available. Selling price per unit Variable costs per unit Contribution margin per unit Machine hours to produce 1 unit Maximum unit sales per month Product G $ 120 40 $ 80 Product B $ 160 90 $ 70 1.0 hours 200 units 0.4 hours 600 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 $15,000 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 S 80.00 $ 70.00 Machine hours per unit 0.41 1.0 Contribution margin per machine hour $ 200.00 $ 70.00 Product Product B Maximum number of units to be sold 600 200 Hours required to produce maximum units 240 Total 200 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 Product B Total Hours dedicated to the production of each product 176 176 Units produced for most profitable sales mix 440 Contribution margin per unit S 80.00 Total contribution margin-one shift $ 35,200 $ 35,200 70.00 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 Total Hours dedicated to the production of each product 240 112 352 Units produced for most profitable sales mix 600 112 Contribution margin per unit 80.00 S Total contribution margin-two shifts 48,000 S 7,840 $ 55,840 Total contribution margin-one shift 35,200 Change in contribution margin 20,640 Change in fixed costs 15,000 Change in operating income(loss) $ 5,640 Total incremental income $ 132,320 Should the company add another shift? Yes 4. Suppose the company determines that it can increase Product G's maximum sales to 700 units per month by spending $12.000 per month in marketing efforts. Should the company pursue this strategy and the double shift? Compute total incremental income. Product Product B Total Second shift without marketing campaign: Units produced for most profitable sales mix 700 72 Contribution margin per unit 80.00 $ 70.00 Contribution margin $ 56,000 $ 5,040 $ 61,040 Additional fixed costs $ 55,840 Incremental income $ 116,880 Second shift with marketing campaign: Units produced for most profitable sales mix Contribution margin per unit Contribution margin 700 80.00 56,000 $ $ 72 70.00 5,040