Question: Digits Company is able to produce two products, 22 and 44, 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 23 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 23 days per month. This change would require $5,000 additional fixed costs per month.
Required: 1. Determine the contribution margin per machine hour that each product generates.
2. How many units of Product 22 and Product 44 should the company produce if it continues to operate with only one shift? How much total contribution margin does this mix produce each month?
3. If the company adds another shift, how many units of Product 22 and Product 44 should it produce? How much total contribution margin would this mix produce each month? Should the company add the new shift? Explain.
4. Suppose that the company determines that it can increase Product 44's maximum sales to 500 units per month by spending $500 per month in marketing efforts. Should the company pursue this strategy and the double shift? Explain.