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

Question

Ortiz 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 $ 140 $ 240
Variable costs per unit 20 70



Contribution margin per unit $ 120 $ 170



Machine hours to produce 1 unit 0.4 hours 4.0 hours
Maximum unit sales per month 840 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 $6,100 additional fixed costs per month.

Required:
1.
Determine the contribution margin per machine hour that each product generates.

Explanation / Answer

machine G produces 1 unit in 0.4 hours therefore per day it produces 8/0.4 that is 20 units(sine only 8 hrs per day is the shift) hence in 22 working days it produces 22*20 =440 units similarly machine b produces 44 units

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