Ortiz Company is able to produce two products, G and B, with the same machine in
ID: 2699228 • Letter: O
Question
Ortiz Company is able to produce two products, G and B, with the same machine in its factory. The following information is available.
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 $7,000 additional fixed costs per month.
Determine the contribution margin per machine hour that each product generates. (Round your final answers to the nearest dollar amount. Omit the "$" sign in your response.)
How many units of Product G and Product B should the company produce if it continues to operate with only one shift? (Leave no cells blank - be certain to enter "0" wherever required.)
How much total contribution margin does this mix produce each month? (Omit the "$" sign in your response.)
How much total contribution margin would this mix produce each month? (Amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)
Suppose that the company determines that it can increase Product G's maximum sales to 440 units per month by spending $1,800 per month in marketing efforts, how many units of Product G and Product B should it produce? (Leave no cells blank - be certain to enter "0" wherever required.)
How much total contribution margin would this mix produce each month? (Leave no cells blank - be certain to enter "0" wherever required. Amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)
Product G Product B Selling price per unit $ 180 $ 200 Variable costs per unit 20 110 Contribution margin per unit $ 160 $ 90 Machine hours to produce 1 unit 0.8 hours 4.0 hours Maximum unit sales per month 400 units 450 unitsExplanation / Answer
THIS WILL HELP YOU
I found that the contribution margin per hour machine is 400 for product G and for product B it is 37.5
You already know which of the products is more profitable so you know which you want to produce more of, but you are limited to the estimated maximum sales per month. Look at how much time (machine hours) it takes to produce that product given the maximum units you can sell at the machine hours for that product. Any difference remaining in machine hours could be applied to producing the other product. The increase in total contribution will tell you whether it is worth the additional fixed costs.Related Questions
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