1. Determine the contribution margin per machine hour that each product generates.Product GProduct BContribution margin per unitMachine hours per unit115.00 $92.00$0.41.0287.50 $Contribution margin per machine hour92.00TotalProduct GProduct BMaximum number of units to be soldHours required to produce maximum units6502502602505102. 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 GProduct BTotalHours dedicated to the production of each productUnits produced for most profitable sales mix17601764400Contribution margin per unit$115.000.00Total contribution margin - one shift50,60050,600|3. If the company adds another shift, how many units of Product G and Product B should it produce? How much totalincremental income would this mix produce each month? Should the company add the new shift?Product GProduct BTotalHours dedicated to the production of each product26092352Units produced for most profitable sales mix65092Contribution margin per unitTotal contribution margin - two shiftsTotal contribution margin - one shiftChange in contribution margin$115.0092.0074,750$83,2148,46450,60032,614 Change in fixed costsChange in operating income(loss)Total incremental incomeShould the company add another shift?11,50021,114Yes4. Suppose the company determines that it can increase Product G's maximum 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? Compute totalincremental incomeTotalProduct GProduct BSecond shift without marketing campaign:Units produced for most profitable sales mixContribution margin per unitContribution margin0Second shift with marketing campaign:Units produced for most profitable sales mixContribution margin per unitContribution marginAdditional fixed costsAdditional marketing costsIncremental income7292.006,624 $87,12411,50010,500NoGA

Question
Asked Oct 2, 2019

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 contribution margin per machine hour that each product generates.
Product G
Product B
Contribution margin per unit
Machine hours per unit
115.00 $
92.00
$
0.4
1.0
287.50 $
Contribution margin per machine hour
92.00
Total
Product G
Product B
Maximum number of units to be sold
Hours required to produce maximum units
650
250
260
250
510
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
176
0
176
440
0
Contribution margin per unit
$
115.00
0.00
Total contribution margin - one shift
50,600
50,600
|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 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
Total contribution margin - two shifts
Total contribution margin - one shift
Change in contribution margin
$
115.00
92.00
74,750$
83,214
8,464
50,600
32,614
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1. Determine the contribution margin per machine hour that each product generates. Product G Product B Contribution margin per unit Machine hours per unit 115.00 $ 92.00 $ 0.4 1.0 287.50 $ Contribution margin per machine hour 92.00 Total Product G Product B Maximum number of units to be sold Hours required to produce maximum units 650 250 260 250 510 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 176 0 176 440 0 Contribution margin per unit $ 115.00 0.00 Total contribution margin - one shift 50,600 50,600 |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 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 Total contribution margin - two shifts Total contribution margin - one shift Change in contribution margin $ 115.00 92.00 74,750$ 83,214 8,464 50,600 32,614

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Change in fixed costs
Change in operating income(loss)
Total incremental income
Should the company add another shift?
11,500
21,114
Yes
4. Suppose the company determines that it can increase Product G's maximum 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? Compute total
incremental income
Total
Product G
Product B
Second shift without marketing campaign:
Units produced for most profitable sales mix
Contribution margin per unit
Contribution margin
0
Second shift with marketing campaign:
Units produced for most profitable sales mix
Contribution margin per unit
Contribution margin
Additional fixed costs
Additional marketing costs
Incremental income
72
92.00
6,624 $
87,124
11,500
10,500
No
GA
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Change in fixed costs Change in operating income(loss) Total incremental income Should the company add another shift? 11,500 21,114 Yes 4. Suppose the company determines that it can increase Product G's maximum 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? Compute total incremental income Total Product G Product B Second shift without marketing campaign: Units produced for most profitable sales mix Contribution margin per unit Contribution margin 0 Second shift with marketing campaign: Units produced for most profitable sales mix Contribution margin per unit Contribution margin Additional fixed costs Additional marketing costs Incremental income 72 92.00 6,624 $ 87,124 11,500 10,500 No GA

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check_circleExpert Solution
Step 1

1 and 2 parts of the table is shown below:

D E
C
G
H
A
1
1
Product G
Product B
2
3 Contribution margin per unit
4 Machine hours per unit
5 Contribution margin per machine hour
115
92
0.4
1
|=F3*( 1 / F4)
92
Product G
Product B
Total
6
250
-G7 / 1
650
7 Maximum number of units to be sold
-F7/(1/0.4)
- F8+G8
8 Hours required to produce maximum units
9
10 2
Product G
Product B
Total
11
-22*8
|=F12*(1/0.4)
115
=F13 *F14
=F12+G12
12 Hours dedicated to the production of each
13 Units produced for most profitable sales mix
14 Contribution margin per unit
15 Total contribution margin - one shift
0
0
=F15+G15
0
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D E C G H A 1 1 Product G Product B 2 3 Contribution margin per unit 4 Machine hours per unit 5 Contribution margin per machine hour 115 92 0.4 1 |=F3*( 1 / F4) 92 Product G Product B Total 6 250 -G7 / 1 650 7 Maximum number of units to be sold -F7/(1/0.4) - F8+G8 8 Hours required to produce maximum units 9 10 2 Product G Product B Total 11 -22*8 |=F12*(1/0.4) 115 =F13 *F14 =F12+G12 12 Hours dedicated to the production of each 13 Units produced for most profitable sales mix 14 Contribution margin per unit 15 Total contribution margin - one shift 0 0 =F15+G15 0

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Step 2

Results of the formulas used in the above table are as follows:

 

 

A
C
G
1 1
Product Product
В
2
3 Contribution margin per unit
4 Machine hours per unit
5 Contribution margin per machine hour
$115.00
$92.00
0.4
1
$287.50 $92.00|
Product Product
Total
G
B
6
7 Maximum number of units to be sold
8 Hours required to produce maximum units
650
250
260
250
510
10 2
Product Product
Total
В
11
12 Hours dedicated to the production of each product
13 Units produced for most profitable sales mix
14 Contribution margin per unit
15 Total contribution margin - one shift
176
0
176
440
0
115
50600
0
50,600
LO
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A C G 1 1 Product Product В 2 3 Contribution margin per unit 4 Machine hours per unit 5 Contribution margin per machine hour $115.00 $92.00 0.4 1 $287.50 $92.00| Product Product Total G B 6 7 Maximum number of units to be sold 8 Hours required to produce maximum units 650 250 260 250 510 10 2 Product Product Total В 11 12 Hours dedicated to the production of each product 13 Units produced for most profitable sales mix 14 Contribution margin per unit 15 Total contribution margin - one shift 176 0 176 440 0 115 50600 0 50,600 LO

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Step 3

3 and 4 parts of the table is shown be...

A
В
CDE
F
G
Н
17 3
Product G
Product B
Total
18
19 Hours dedicated to the production of each product
20 Units produced for most profitable sales mix
21 Contribution margin per unit
22 Total contribution margin-two shifts
23 Contribution margin -one shifts
24 Change in contribution margin
25 Change in fixed costs
26 Change in operating income (loss)
-650/(1/0.4)-(22*8*2) -F19-F19+G19
-F19 (1/0.4)-G19*1
92
-G20*G21
115
-F20"F21
=F22+G22
50600
=H22- H23
11500
-H24- H25
=H26
27 Total incremental income
28 Should the company pursue marketing campaign
Yes
29
30 4
Product G
Product B
Total
31
32 Hours dedicated to the production of each product
33 Units produced for most profitable sales mix
34 Contribution margin per unit
35 Total contribution margin-two shifts & marketing
36 Contribution margin -two shifts without marketing efforts
37 Change in contribution margin
38 Additional marketing costs
39 Change in fixed costs
40 Change in operating income (loss)
41 Should the company pursue marketing campaign
= 700/(1/0.4)(22*8*2)-F32F32+G32
-G32*1
92
700
115
- F33 *F34
-F35+G35
83214
-Н35-Н36
10500
-G33*G34
11500
ЕН37-Н38-Н39
No
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A В CDE F G Н 17 3 Product G Product B Total 18 19 Hours dedicated to the production of each product 20 Units produced for most profitable sales mix 21 Contribution margin per unit 22 Total contribution margin-two shifts 23 Contribution margin -one shifts 24 Change in contribution margin 25 Change in fixed costs 26 Change in operating income (loss) -650/(1/0.4)-(22*8*2) -F19-F19+G19 -F19 (1/0.4)-G19*1 92 -G20*G21 115 -F20"F21 =F22+G22 50600 =H22- H23 11500 -H24- H25 =H26 27 Total incremental income 28 Should the company pursue marketing campaign Yes 29 30 4 Product G Product B Total 31 32 Hours dedicated to the production of each product 33 Units produced for most profitable sales mix 34 Contribution margin per unit 35 Total contribution margin-two shifts & marketing 36 Contribution margin -two shifts without marketing efforts 37 Change in contribution margin 38 Additional marketing costs 39 Change in fixed costs 40 Change in operating income (loss) 41 Should the company pursue marketing campaign = 700/(1/0.4)(22*8*2)-F32F32+G32 -G32*1 92 700 115 - F33 *F34 -F35+G35 83214 -Н35-Н36 10500 -G33*G34 11500 ЕН37-Н38-Н39 No

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