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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 $150 $180
Variable costs per unit 60 108
Contribution margin per unit $90 $72
Machine hours to produce 1 unit 0.4 hours 1.0 hours
Maximum unit sales per month 550 units 200 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 $9,000 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)
Required:
1. Determine the contribution margin per machine hour that each product generates.
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?

Respuesta :

jepessoa

Answer:

                                                              Product G       Product B

Selling price per unit                                  $150                $180

Variable costs per unit                                $60                $108

Contribution margin per unit                      $90                  $72

Machine hours to produce 1 unit          0.4 hours          1.0 hours

Maximum unit sales per month            550 units          200 units

1)

Contribution margin per                     = $90 / 0.4          = $72 / 1

machine hour                                           = $225               = $72

2)

total operating hours per                                   176 hours

month

units produced                                       440 units         0 units

contribution margin                                $39,600                $0

Since Product G generates a much higher contribution margin per machine hour, all the available machine hours (176) should be used to produce it. That would result in 440 units produced and $39,600 generated as contribution margin.

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