[moonkhan209]

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 $ 220 $ 220
Variable costs per unit 60 70


Contribution margin per unit $ 160 $ 150
Machine hours to produce 1 unit 0.4hours 4.0 hours

Maximum unit sales per month 840 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 $6,400 additional fixed costs per month.
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?
If the company adds another shift, how many units of Product G and Product B should it produce?
I am confused with these question,as I alreaady calculated the Contribution margin per machine hour, but can't figure out about units of Product G and B, any idea or any guess, please help.

[Just Looking]

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. Look at how many machine hours are available with the two different scenarios for shift work.

[moonkhan209]

I found that the contribution margin per hour machine is 400 for product G and for product B it is 37.5, but what is the next step I should take to exactly find how many units it can produce. Will be very thankful for your help.

[Just Looking]

Not sure why your contribution margins are changing from your original question, but you were given the maximum number of units the company estimated it could sell per month. They won't want to produce more than that number. You also know the machine hours required per unit. If you were to produce the maximum number of the product with the higher contribution margin, how many machine hours would it take? How many machine hours do you have available with one shift? How many with two shifts?

PS - It's late here and I have to be to work early tomorrow. I'll check in on this in the morning.

[moonkhan209]

Thanks for your help,I was able to find out how many units of product G can be produced,but can't find the units for Product B if it adds another shift. Plus how I calculate the extra shift cost.

[Just Looking]

If you know how many hours it takes to produce product G and you know how many totals hours you have (days x hours per shift), the balance of hours is available to product B. You also know how many hours it takes to produce product B so you can figure out the number of units you can make.

You don't have to figure out the cost of the extra shift. You can figure out how much margin will be contributed. If you compare that to the additional fixed costs you will know if it is worthwhile.

[moonkhan209]

Thanks for your help, Yes,now I am able to figureout the units of product B. I think I will need to calculate the extra cost to find out the total contribution of this mix. I came up with 840 units of Product G and 4 for Product B. How much total contribution margin would this mix produce each month?

[moonkhan209]

Can you please help me to figure out the fixed cost for this question.
https://www.askmehelpdesk.com/accounting/scatter-diagram-cost-behavior-estimation-588275-new.html

[Just Looking]

Your answer of 4 is for 2 shifts. You can figure the contribution margin by multiplying the units of each product by the contribution margin stated.

Did you figure out how much product can be made if there is only 1 shift? The question asks for each solution - i.e. 1 shift and 2 shifts.