Joint Revenues and Product Analysis. You developed the following analysis of product contribution for your shop that specializes in ties and shirts.

Total Ties Shirts Revenue $60,000 $25,000 $35,000 Variable costs 20,000 5,000 15,000 Contribution margin 40,000 20,000 20,000 Advertising and promotion 2,500 2,000 500 Product contribution 37,500 $18,000 $19,500 Rent and salaries 15,000 Profit before taxes $ 22,500 Required:

a. Which product has the highest contribution margin percentage? Show calculations.

b. On average, customers spend about $5 on Ties for each $10 they spend on_ Shirts.

Assume this holds true for any sales increases. How much will profit increase for a

$1,000 increase in Shirt sales? Show calculations.

c. If the company stopped selling Shirts and started selling only Ties, would you expect company profits to increase or decrease? Why?

d. How can managers use the concept of joint revenues to make profit maximizing decisions?

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