Problem 23-5A Analysis of sales mix strategies LO A1 Edgerron Company is able to

Question

Problem 23-5A Analysis of sales mix strategies LO A1 Edgerron Company is able to produce two products, G and B, with the same machine in its factory. The following information is available Selling price per unit Variable costs per unit Product G Product B $ 200 120 $170 70 Contribution margin per unit 100 S 80 Machine hours to produce 1 unit Maximum unit sales per month 0.4 hours 550 units 1.0 hours 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 $10,000 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)

Explanation / Answer

1 Product G Product B Contribution margin per unit $100.00 $80.00 Machine hours per unit 0.4 1 Contribution margin per machine hour $250.00 $80.00 Product G Product B Total Maximum number of units to be sold 550 200 Hours required to produce maximum units 220 200 420 2 Product G Product B Total Hours dedicated to the production of each product 176 176 Units produced for most profitable sales mix 440 Contribution margin per unit $100.00 Total contribution margin - one shift $44,000.00 3 Product G Product B Total Hours dedicated to the production of each product 220 132 352 Units produced for most profitable sales mix 550 132 Contribution margin per unit $100.00 $80.00 Total contribution margin - two shifts $65,560 Total contribution margin - one shift $44,000.00 Change in contribution margin 21,560 Change in fixed costs 10,000 Change in operating income(loss) $11,560 Should the company add another shift? Yes 4 Product G Product B Total Hours dedicated to the production of each product 240 112 352 Units produced for most profitable sales mix 600 112 Contribution margin per unit 100 80 Total contribution margin - two shifts and marketing campaign $68,960 Contribution margin - two shifts without marketing campaign $65,560 Change in contribution margin 3,400 Additional marketing costs 9,000 Change in fixed costs 10,000 Change in operating income(loss) ($15,600) Should the company pursue the marketing campaign? No

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