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 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

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 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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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	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