Question

In: Accounting

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

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.)

1. Determine the contibution 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 650 250
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- two shifts
4. Suppose that the company determines that it can increase Product G's maximium sales to 700 units per month by spending $10,500 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
(Yes/No)

Solutions

Expert Solution

Answer 1
Determine the contibution margin per machine hour that each product generates
Product G Product B
Contribution Margin per unit $115.00 $92.00
Contribution Margin per machine hour $287.50 $92.00
Product G Product B Total
Maximum Number of Units to be Sold 650 250
Hours required to produce maximum units 260 250 510
Answer 2
Product G Product B Total
Hours Dedicated to the production of each product 176 0 176
Units produced for most profitable sales mix 440 0
Contribution Margin per unit $115.00 $92.00
Total contribution margin- one shift $50,600.00 $0.00 $50,600.00
Answer 3
Product G Product B Total
Hours Dedicated to the production of each product 260 92 352
Units produced for most profitable sales mix 650 92
Contribution Margin per unit $115.00 $92.00
Total contribution margin- Two shifts $74,750.00 $8,464.00 $83,214.00
Less : Additional Fixed cost $11,500.00
Operating Profit $71,714.00
Answer 4
Product G Product B Total
Hours Dedicated to the production of each product 280 72
Units produced for most profitable sales mix 700 72
Contribution Margin per unit $115.00 $92.00
Total contribution margin- Two shifts and Marketing Campaign $80,500.00 $6,624.00 $87,124.00
Less : Additional Fixed cost and Marketing expense $22,000.00
Operating Profit $65,124.00
Company should not pursue this marketing strategy as it leads to fall in monthly operating profit by $6590

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