1 answer

Edgerron Company is able to produce two products, G and B, with the same machine in...

Question:

Edgerron Company is able to produce two products, G and B, with the same machine in its factory. The following information is available. Product GProduct BSelling price per unit $90 $120 Variable costs per unit 30 72 Contribution margin per unit $60 $48 Machine hours to produce 1 unit0.4hours 1.0hours Maximum unit sales per month600units 200units

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 $6,000 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 hour that each product generates for Product G and Product B.

CM per unit

Machine hours per unit

CM per machine hour

Max # of units to be sold

Hours required to produce max units

2. How many Units of product G and B should the company produce if it continues to operate w only one shift? How much total con margin does this mix produce each month?

Hours dedicated to the production of each product

Units produced for most profitable sales mix

Con margin per unit

Total con margin - one shift

3. If the company adds another shift, how many units of Product G and B should it produce? How much total contribution margin would this mix produce each month?

Hours dedicated to the production of each product

units produced for most profitable sales mix

total contribution margin - two shifts

4. Suppose that the company determines that it can increase product g's max sales to 700 units per month by spending $5,000 per month in marketing efforts. Should the company pursue this strategy and the double shift?

Hours dedicated to the production of each product

units produced for most profitable sales mix

con margin per unit

total con margin - two shifts and marketing campaign


Answers

1 product G product B
Contribution margin per unit 60 48
machine hours per unit 0.4 1
contribution margin per machine hour 150 48
product G product B total
Maximum number of units to be sold 600 200
hours required to produce maximum units 240 200 440
2) product G 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 60
total contribution margin - one shift 26400 26,400
3) product G 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 60 48
total contribution margin-two shifts 36000 5376 41376
contribution margin -one shifts 26,400
change in contribution margin 14,976
change in fixed costs 6,000
change in operating income (loss) 8,976
should the company pursue marketing campaign yes
4) product G product B total
hours dedicated to the production of each product 280 72 352
units produced for most profitable sales mix 700 72
contribution margin per unit 60 48
total contribution margin-two shifts & marketing campaogn 42000 3456 45456
contribution margin -two shifts without marketing ca 41,376
change in contribution margin 4,080
Additional marketing costs 5,000
change in fixed costs 6,000
change in operating income (loss) -6,920
should the company pursue marketing campaign No
.

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