“Easton Corporation makes two different boat anchors — atraditional fishing anchor and a high-end yacht anchor — using thesame production machinery. The contribution margin of the yachtanchor is three times as high as that of the other product. Thecompany is currently operating at full capacity and has been doingso for nearly 2 years. Bjorn Borg, the company’s CEO, want to cutback on production of the fishing anchor so that the company canmake more yacht anchors. He says that this is a “no-brainer”because the contribution margin of the yacht anchor is so muchhigher.”
(Weygandt, Kimmel, & Kieso, 2012).
Instructions
Write a 1-page memo to Bjorn Borg describing the analysis thatthe company should perform. Be sure to address the following inyour analysis:
What role might contribution margin per unit of limitedresource play in this decision?
My Answer:The equation for the contribution margin per unit is:unit sales price- unit variable cost this is basically used tosolve the equation when there is an unknown. For example, if youhave a cost structure and estimation of the sales volume for theupcoming period the equation therefore predicts the profits forthat period and another example would be if the firms coststructure and the equation indicates the required sales volume toachieve a targeted level of profit it the targeted profits are zerothen the equation would be Q (sales volume) = FC/ Unit contributionmargin.
Should the marketing department be involved in thedecision-making process? How important is consumerdemand?
My Answer: Yes, it is very important that the marketingdepartment be involved in the decision making process because theyare involved in the plans for the firms marketing activities and itcould pertain to one item or many throughout the business. It isalso important to the consumer demand because they conduct researchto where the product would be most successful and useful, and whattype of consumers will be able to afford the product as well.
Should the company consider expanding their productionfacilities or purchasing additional equipment?
How might this change affect their company brand or thecustomer’s perception of their brand? Will they be appealing to adifferent market by only offering yacht anchors?
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