Edgerron Company is able to produce two products, G and B, with the same machine in its factory. The following information is av

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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 av

ailable. Product G Product B Selling price per unit $ 120 $ 160 Variable costs per unit 40 90 Contribution margin per unit $ 80 $ 70 Machine hours to produce 1 unit 0.4 hours 1.0 hours Maximum unit sales per month 600 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 $15,000 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)

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1 answer:

Nady [3.6K] · Answer 1 · 2026-04-08T23:30:45+03:00

Product G Product B Selling price per unit $120 $160 Variable costs per unit $40 $90 Contribution margin per unit $80 $70 Machine hours per unit 0.4 hours 1.0 hours Max. unit sales per month 600 units 200 units The machine operates for 8 hours daily over 22 days each month, leading to 176 machine hours total. Product G Product B Machine hours per unit 0.4 hours 1.0 hours Contribution margin per machine hour $200 $70 Total hours required for max production 240 200 440. The company should focus solely on producing Product G, as it can produce 440 units monthly, resulting in a contribution margin of $35,200. If the company opts for a two-shift schedule, it could manufacture 600 units of Product G (using 240 machine hours) and allocate the remaining 112 machine hours to produce 112 units of Product B, yielding a total contribution margin of $48,000 + $7,840 = $55,840. The additional contribution margin gained equals $20,640, surpassing the extra costs from operating two shifts, ultimately leading to an increase in profits by $5,640 ($20,640 - $15,000).