Question - 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 $ 120 $ 160
Variable costs per unit 40 90
Contribution margin per unit $ 80 $ 70
Machine hours to produce 1 unit 0.8 hours 2.0 hours
Maximum unit sales per month 400 units 350 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 $6,500 additional fixed costs per month.
Required: Determine the contribution margin per machine hour that each product generates.