Answer:
Product G Product B
Selling price per unit $120 $160
Variable costs per unit $40 $90
Contribution margin per unit $80 $70
Machine hours per unit 0.4 hours 1.0 hours
Max. unit sales per month 600 units 200 units
machine operate 8 hours per day during 22 days per month, total hours of machine work per month = 176
Product G Product B
Machine hours per unit 0.4 hours 1.0 hours
Contribution margin per $200 $70
machine hour
number of hours needed to 240 200 440
produce maximum sales in total
Currently the company should only produce Product G, since it is able to produce 440 units per month and that generates a contribution margin of $35,200.
If the company decides to produce in two shifts, then it should produce 600 units of Product G (using 240 machine hours) and use the remaining 112 machine hours to produce 112 units of product B. This will generate a total contribution margin of: $48,000 +$7,840 = $55,840.
The additional contribution margin generated = $55,840 - $35,200 = $20,640, which is higher than the additional costs generated by working in two shifts. The second shift will increase the company's p´profits by $5,640 (= $20,640 - $15,000).
